Alertas de Ação O gerente de carteira PLUS, Jim Cramer e diretor de pesquisa, Jack Mohr, revelam suas táticas de investimento ao mesmo tempo em que notificam antecipadamente todas as negociações. Características do produto: 2,5 milhões de portfólio Grandes capitais e foco de dividendos Alertas de comércio intra-temporário da Cramer Roundups semanais Real Money Pro All of Real Money. Além de mais 15 mentes do Wall Streets, apresentando idéias comerciais negociáveis, uma visão abrangente do mercado e análises fundamentais e técnicas. Características do produto: Dinheiro real Doug Kass mais 15 mais comentários de Wall Street Comentários e novidades intradisciais Idéias comerciais ultra-acionáveis Trifecta Stocks Trifecta Stocks analisa mais de 4.000 ações semanais para encontrar a elite 1 de ações que passam rigorosos testes quantitativos, fundamentais e técnicos. Características do produto: modelo de carteira Recomendações de alertas comerciais para mais de 4.300 ações Relatórios de pesquisa ilimitados em suas ações favoritas Stocks Under 10 David Peltier descobre estoque de dólares baixos com potencial positivo elevado que voa sob o radar Wall Streets. Características do produto: portfólio de modelos Negociação de ações abaixo de 10 alertas de comércio intra-dia Rondas semanais Quantas classificações Acesse a ferramenta que domina o Russell 2000 SP 500. Características do produto: Compre, segure ou venda recomendações para mais de 4.300 ações Relatórios de pesquisa ilimitados em suas ações favoritas A Filtro de estoque personalizado Alertas de atualização avançada O consultor de estoque de dividendos David Peltier identifica os melhores estoques de dividendos de raça que irão pagar um fluxo de renda confiável e significativo. Características do produto: boletim de boletim bi-semanal Carteira modelo diversificada de ações de dividendos Alertas de negócios intraday O pesquisador de crescimento Chris Versace e Lenore Elle Hawkins, usando testes de estoque sofisticados e pesquisas fundamentais, identificam ações de crescimento de alto potencial e pequenas e médias ações. Características do produto: modelo de portfólio de pequenas dimensões e mediados de cap foco Intraday trade alertas Roundups semanais Top Stocks With Top Stocks, Helene Meisler usa indicadores de curto e longo prazo para identificar os breakouts iminentes nos estoques. Características do produto: idéias de negociação diária e análise técnica Comentário e análise diária do mercado Exceto quando indicado de outra forma, as cotações estão atrasadas. Cotações atrasadas pelo menos 20 minutos para todas as trocas. Dados de mercado fornecidos pela Interactive Data. Dados fundamentais da empresa fornecidos pela Morningstar. Ganhos e classificações fornecidos pela Zacks. Dados de fundos mútuos fornecidos pela Valueline. Dados ETF fornecidos pela Lipper. Alimentado e implementado por soluções interativas de gerenciamento de dados. TheStreet Ratings atualiza as avaliações de ações diariamente. No entanto, se nenhuma alteração de classificação ocorrer, os dados nesta página não são atualizados. Os dados atualizam-se após 90 dias se nenhuma alteração de classificação ocorrer dentro desse período de tempo. O IDC calcula o limite de mercado para o símbolo básico para incluir apenas ações ordinárias. Os rendimentos do fundo mútuo do ano até à data são calculados mensalmente pela Value Line e postados no meio do mês. Copie 1996-2017 TheStreet, Inc. Todos os direitos reservados. Treinamento comercial gratuito. O programa de treinamento gratuito é composto por dois segmentos: Teoria e Prática. Os tópicos da teoria principal serão apresentados no formato de palestra que incluirá exercícios em grupo, questionários e discussões em aula. A instrução prática incidirá nas estratégias diárias e na disciplina e será supervisionada de perto. No primeiro dia esperamos que você ganhe dinheiro. Você tem o que é preciso para ser um comerciante prop. Isso requer confiança e vontade de aceitar erros. Pergunte a si mesmo: eu sempre tenho que estar certo. Se assim for, você terá que desistir disso. Posso aceitar meus erros, aprender com eles e continuar voltando para mais Se não, você terá que aprender como. Prop Trading envolve especulação de alto risco. É especulativo e arriscado e você vai se humilhar. Isso vai abalar a confiança que você tem em suas habilidades. O comércio de propostas pode revelar-se uma das coisas mais difíceis que você já empreendeu. Você precisa entender que todos passam por uma curva de aprendizado e, começando com a atitude de que você não precisa de treinamento ou que você sabe sobre negociação, pode significar que você não estará por perto o suficiente para superar essa curva de aprendizado. Esta curva é íngreme e varia de pessoa para pessoa. Existem razões típicas pelas quais as pessoas perdem dinheiro e falham no comércio de prop e você deve estar ciente disso. No início, as pessoas perdem dinheiro principalmente por causa de erros de tecla, por exemplo, eles usarão uma chave de compra quando realmente quiserem usar uma chave de venda, ou eles não conseguirem cortar suas perdas porque não batem as chaves à direita Tempo. Em última análise, as pessoas falham na negociação de prop, porque eles não têm disciplina. O curso gratuito de negociação de negociação proprietária desenvolverá o conhecimento, a psicologia e as estratégias necessárias para negociar com sucesso em mercados eletrônicos de valores e proporcionará a oportunidade para que os formandos se tornem parte de nossa equipe de comerciantes de elite. Índice Índice. 3 Mercado e intercâmbios 10 1.1 Trocas 10 1.3 Mercado primário e secundário 10 1.4 O NASDAQ. 11 Ordens, Transações e Posições 14 2.2 Transações 14 2.3 Ordens Limites 15 2.4 Ordens de Mercado 15 2.5 Posições Longas 15 2.6 Posições Curtas 16 2.7 Inventário. 16 2.8 Lucros negativos 17 2.9 Lucros realizados 17 Mercado de leilões O especialista 18 3.1 Mercado de leilões 18 3.2 Características dos mercados de leilões 18 3.3 O livro especialista. 18 3.4 Responsabilidades do Especialista 19 3.4.1. Especialista como leiloeiro 19 3.4.2. Especialista como agente 19 3.4.3. Especialista como Catalyst 19 3.4.4. Especialista como Principal 19 Mercado do Comerciante Market Maker 20 4.1 Mercado do Revendedor 20 4.2 Fabricantes de Mercado 20 4.3 Produtores de Mercado VS Prop Traders 20 4.4 Restritos de Market Makers 21 4.5 Responsáveis de Market Makers 21 4.6 Market Markers Fontes de renda. 21 Redes de Comunicação Eletrônica e Piscinas Negras 22 5.1 Redes de Comunicação Eletrônica 22 5.2 ECNs Características e Características 22 5.3 Piscinas Negras 23 Ferramentas básicas de software e conceitos de negociação 24 6.1 Nível 2 um nível além. 24 6.2 Leitura de fita. 23 6.3 Resumo do Monitor de Negociação e da Posição. 24 6.4 Primeiro em primeiro lugar (FIFO) 25 6.6 Liquidez. 25 6.7 Rip, Tank, Swipe. 25 6.8 Volatilidade. 26 6.10 Sistema de Execução. 27 6,12 Comerciantes de varejo e Prop Trader 27 6,13 Arbitragem. 28 6.14 Lotes, Lotes redondos, Lotes estranhos 28 6.15 Fechamento cruzado. 28 Indicadores de Mercado Conceitos de Informação 30 7.1 Índices e Médias 30 7.2 Dow Jones 30 7.3 SampP 500. 31 7.5 SampP 500 Futuros 32 7.6 Squawk Box. 32 7.7 Conceitos gerais de informação do mercado 34 7.7.2. Correlação. 35 7.7.3. Expectativas 35 7.7.4. Reunião do Fed. 36 7.7.5. Criadores de estoque 36 Gerenciamento de riscos 37 8.2 Gerenciamento de riscos 37 8.3 Exposição de risco de negociação de longo prazo. 38 8.3.1. Risco de menor liquidez: 38 8.3.2. Risco de maior volatilidade: 38 8.3.3. Risco de mudança de preços: 38 8.3.4. Risco de mercados não vinculados: 39 8.3.5. Risco de anúncios de notícias: 39 8.3.6. Risco de expansões mais amplas: 39 8,4 Perda máxima, ações máximas e poder de compra 39 8.4.1. Perda máxima 39 8.4.2. Poder de compra 40 8.4.3. Max Ações 40 Regras e Conformidade. 41 9.1 Regulamentos 41 9.3 O FINRA. 41 9.4 Regulamentos nas Empresas de Negociação Proprietárias 42 9.5 As principais regras que os comerciantes terão de seguir são: 42 9.6 Trabalhos Quebrados 42 Psicologia de Negociação. 43 10.3 Disciplina. 43 10.4 Comportamentos que levam a negociações mal sucedidas. 44 10.5 Habilidades a serem adquiridas. 44 10.7 Emoções experimentadas ao iniciar a negociação. 45 10.7.2. Frustração. 46 10.7.3. Antecipação. 46 10.7.4. IncredulityAmazement 46 10.7.5. Elation. 46 10.8 Introdução. 46 10.8.1. Dos e Donts 46 10.8.2. Preparação diária. 47 10.8.3. Gerenciamento de dinheiro 47 10.9 Obstáculos psicológicos 48 10.10 A abordagem 3PEPIPANIA. 48 10.10.1. Persistência. 48 10.10.2. Preservação. 49 10.10.3. Paciência. 49 10.11 Planos de batalha 49 10.12 Axiomas comerciais gerais 51 10.13 Outros conceitos de psicologia comercial 51 10.13.1. Transparência: 51 10.13.2. Desejos e fé. 52 10.13.3. Intuição, Experiência, Sensação de Mercado 52 10.13.4. Pessoas instintivas e analistas 52 10.13.5. Open Minded Traders são os melhores 53 10.13.6. Imitação. 53 10.13.7. Experiência, Curvas de aprendizado e aprendizagem constante: 54 10.13.8. Efeito de multidão, Contrarian. 54 10.13.9. Vida pessoal e auto-avaliação. 55 Conceitos de Estratégias de Negociação 56 11.1 Quantas estratégias como comerciantes 56 11.2 Negociação ativa e negociação passiva. 56 11.3 Tamanho do lance de compra: 56 11.5 Gerenciamento de inventário 57 11.6 Enchimentos parciais Amp. De probabilidade extra 57 11.7 Fazendo negócios 57 11.8 Leitura de fita e negociações de blocos: 58 11.9 Números redondos 58 11.10 O spread de nível 1. 58 11.11 Pedidos Múltiplos, preenchimentos múltiplos 58 11.12 Aperto curto. 59 11.13 O Machado. 59 11.14 Tipos de ordem avançados: 59 11.14.1. Ordens ocultas 59 11.14.2. Ordens de Reserva 60 11.14.3. Adicionando apenas liquidez. 60 11.14.4. Ordens de teste 60 11.14.5. Seguindo ordens ou Pegging Orders 60 11.14.6. Ordens de comutação 61 11.14.7. Ordens agrupadas 61 11.15 Força relativa. 61 Sua Primeira Batalha. 63 12.1 Simulação. 63 12.2 Comércio ao vivo. 63 Estratégias de Negociação Aplicadas 64 13.1 Scalping: The Rebate Game Market Maker Game. 64 13.1.2. Estratégia. 64 13.1.3. Averaging Down Once ou Twice Maximum. 64 13.1.4. Quando sair da desvantagem. 65 13.1.5. Aviso: 65 13.2 Momentum Trading. 65 13.2.2. Quando sair da desvantagem. 66 13.3 Estratégias de abertura 66 13.3.1. O que é a Abertura 66 13.3.2. Noção de valor justo no mercado aberto. 66 13.3.3. Estratégia de envelope. 67 13.3.4. Back Testing of envelope strategy. 67 13.3.5. Cenário de negociação positiva. 67 13.3.6. Cenário de negociação negativo. 68 13.3.7. Risco dessa estratégia. 68 13.4 Estratégias das piscinas escuras 68 13.4.1. O que são piscinas escuras, como funcionam 68 13.4.2. Recursos das piscinas escuras 68 13.4.3. Pegging Orders 69 13.4.4. Recursos de tamanho de execução 69 13.4.5. Ligação e scanners 69 13.4.6. Algoritmos de negociação anti-predatórios 69 13.4.7. Cenário de negociação positiva. 69 13.4.8. Cenário de negociação negativo. 70 13.4.9. Como as instituições se defendem 70 13.4.10. Bom regras dessa estratégia. 70 13.4.11. Risco dessa estratégia. 71 Períodos de Negociação Intraday 72 Regras do Escritório 73 Lista de Leitura Sugerida 74 Mercado e Trocas 1.1 Trocas Uma troca é uma organização que permite que as transações de produtos financeiros ocorram de forma ordenada e em local centralizado (físico ou virtual). As bolsas de valores são o exemplo mais conhecido. A Bolsa de Valores de Nova York (NYSE) e a National Automation Quotation da National Association of Securities (NASDAQ) são as duas bolsas de valores mais importantes nos Estados Unidos. Para trocas futuras, a Chicago Mercantile Exchange (CME) é líder. As empresas de comércio proprietárias têm acesso a todas as bolsas mencionadas anteriormente, mas também têm acesso à Bolsa de Valores de Londres, que é a bolsa de valores mais importante da Europa. Outros Mercados que em breve estarão disponíveis em Empresas de Negociação Proprietárias incluem a Euronext e a Bolsa de Valores de Toronto. 1.2 Mercados Um mercado é a consolidação de trocas ou transações em um produto financeiro específico. Por exemplo, o mercado de ações dos EUA é a consolidação de todas as transações que acontecem nas bolsas de ações nos Estados Unidos. Outros mercados populares são o mercado de futuros e o mercado de opções que, em conjunto, podem ser chamados de mercado de derivativos. 1.3 Mercado primário e secundário O mercado primário é para novas emissões de valores mobiliários, diferenciados do mercado secundário, onde os títulos emitidos anteriormente são comprados e vendidos. Um mercado é primário se o produto das vendas for para o emissor dos títulos vendidos. Não existe localidade física ou virtual definida para o mercado primário. As transações passam bastante entre banqueiros de investimento e investidores institucionais. Uma vez que todas as transações para uma questão são concluídas no mercado primário, há o que chamamos de Oferta Pública Inicial (IPO) e as ações começam a operar no mercado secundário. Em empresas de comércio de proprietários, concentramos o comércio no mercado secundário. 1.4 O NASDAQ Fundado em 1971, o Sistema de Cotações Automatizado da Associação Nacional de Valores Mobiliários (NASDAQ) é um mercado de revendedores e é o primeiro e maior mercado de ações eletrônico do mundo que possui quase 4000 empresas. É operado pelo NASDAQ Stock Market, Inc. Mais de 500 Market Makers usam seu próprio capital para comprar e vender títulos da NASDAQ e, em seguida, redistribuem o estoque conforme necessário. A rede NASDAQ também conecta sistemas de negociação alternativos, como as redes de comunicações eletrônicas (ECNs), que permitem aos investidores negociar entre si. O Mercado de Valores da NASDAQ é composto por dois mercados distintos: o mercado nacional eo mercado de pequenas capitalizações. O NASDAQ tornou-se recentemente uma negociação pública no NASDAQ sob o símbolo NDAQ. Mais informações podem ser encontradas no site na nasdaq. 1.5 A NYSE Fundada em 1792, a New York Stock Exchange é o maior mercado de leilões do mundo. Está localizado no 11 Wall Street, na cidade de Nova York. A NYSE é chamada de The Big Board ou The Exchange. É um mercado físico que usa um especialista para combinar pedidos. No entanto, a troca está se tornando mais eletrônica com a aquisição da Archipelago Exchange (ARCA Exchange) e mais volume no Sistema de Negociação intra-mercado e diferentes ECNs formando o terceiro mercado. Aproximadamente 3000 empresas no valor de quase 18 trilhões de dólares em capitalização de mercado global estão listadas na troca. O volume médio de estoque é mais de 5 bilhões de ações. Os requisitos de listagem na troca são muito rigorosos. Portanto, a maioria das ações negociadas são empresas mais antigas e navios azuis. Muitas empresas estrangeiras também estão listadas na NYSE como American Depositary Receipts ou outra forma de entidades (450 empresas não norte-americanas com valor de quase 5 Trilhões de dólares). A troca troca muitos outros produtos, como títulos, warrants, direitos e ETFs. Mais informações podem ser encontradas no site na nyse. 1.6 O AMEX O AMEX, que representa a Bolsa de Valores norte-americana, é um mercado menor para ações, mas é o segundo maior intercâmbio de opções no mundo. A AMEX foi comprada pela NYSE em janeiro de 2008. Cerca de 800 ações diferentes foram negociadas na bolsa e muitos ETFs diferentes, já que a AMEX é pioneira nesse campo. Muitas ações da AMEX são negociadas eletronicamente na Bolsa de Valores da NYSE através do Archipelago (ARCA Exchange). O AMEX também foi um mercado de leilões usando um especialista. As Spiders (SPY) e Diamonds (DIA), que são ETFs, respectivamente, com base nos índices SampP500 e Dow Jones foram duas das principais negociações de ETS na troca. Mais informações podem ser encontradas no site da amex. 1.7 O CME A Chicago Mercantile Exchange, que recentemente adquiriu o CBOT e NYMEX, é a maior troca de derivativos dos EUA no mundo. Foi fundada em 1898 como o Chicago Butter and Egg Board, evoluindo para o CME até 1919. A troca é um importante mercado para negociação de futuros e opções sobre produtos agrícolas, moedas, índices e taxas de juros. A troca foi pública em dezembro de 2002 e atualmente é negociada no NASDAQ sob o símbolo CME. O contrato mais popular negociado no CME e também o contrato futuro mais ativo no mundo é o contrato SampP 500 big futures (SP). Representa 250 vezes o índice. As firmas de negociação proprietárias acessam o CME através de sua troca eletrônica chamada GLOBEX, que é a primeira rede de comércio eletrônico de futuros e opções. A GLOBEX troca muitos contratos de futuros com um valor menor, muitas vezes chamado de minis. A ES negociada no GLOBEX é um contrato muito ativo e representa 50 vezes o SampP 500. Também é usado nas empresas de comércio de proprietários como indicador de mercado global. Mais informações podem ser encontradas nos sites da cme. 1.8 A LSE A London Stock Exchange se formou em 1760 como um clube na Jonathans Coffee House por 150 corretores expulsos da Royal Exchange por torpeza. O nome da Bolsa de Valores foi adotado em 1773 e tornou-se uma troca regulada em 1801. Após a desregulamentação em 1986, a LSE, também chamada de Big Bang, introduziu operações informatizadas via cotação automática de bolsa (SEAQ) e SEAQ International Systems que exibem compartilhamento Informações de preços em escritórios de corretores em todo o Reino Unido. A LSE tornou-se uma companhia aberta em 2000, com suas ações listadas no ano seguinte. Em 1997, o intercâmbio introduziu o Serviço de Negociação Eletrônica da Bolsa (SETS). O LSE foi recentemente adicionado ao Arsenal de Empresas de Negociação Proprietárias. Mais informações podem ser encontradas no site em londonstockexchange. Ordens, Transações e Posições 2.1 Ordens Um pedido é um pedido ou anúncio com a intenção de comprar ou vender um produto financeiro específico. Um pedido identifica os termos relativos ao preço, quantidade e condições em que ele precisa ser combinado. Uma ordem diz ser aberta ou pendente até que seja combinada com uma ordem oposta. Uma ordem aberta normalmente pode ser cancelada pelo remetente. Por exemplo, se você enviou um pedido para comprar 1000 ações da MSFT às 24.50, isso é considerado um pedido de compra na MSFT. Um pedido de compra é chamado de lance e uma ordem de venda é chamada de oferta. A melhor oferta e oferta em um estoque de todos os participantes é chamada de NBBO (oferta mais alta e oferta mais baixa). Existem cinco condições em que um comércio precisa pensar quando envia um pedido e eles são: lado (é uma compra ou uma venda), tamanho (a quantidade de ações), rota (é um estoque NYSE ou NASDAQ), ticker ( O símbolo de ações) e condição (é um preenchimento ou cancelar a ordem) 2.2 Transações Um pedido se torna uma transação quando corresponde com outra ordem que pode cumprir suas condições (uma ordem de venda correspondente a uma ordem de compra). Nesse caso, dizemos que o pedido foi preenchido ou executado. Portanto, uma transação, que também é chamada de comércio, sempre tem um lado de compra e um lado de venda. Do exemplo anterior, se alguém envia uma ordem para vender 1000 MSFT às 24.50, uma transação é registrada e ambas as ordens são preenchidas. Se a ordem de venda fosse apenas de 500 ações, o pedido de compra de 1000 ações seria parcialmente preenchido e 500 ações ainda estarão abertas (em pé como um pedido pendente). Por convenção, dizemos que um comerciante está comprando quando compra da oferta (também referido como tendo a oferta) e aguarda quando ele faz uma ordem de compra abaixo da melhor oferta. Da mesma forma, dizemos que ele está vendendo se ele coloca uma ordem de venda ao preço da oferta (também referido como atingindo a oferta) e oferece se ele está oferecendo acima da melhor oferta. 2.3 Ordens de limite Uma ordem de limite é uma ordem para comprar a um preço específico ou menor. A execução pode acontecer ao preço especificado ou a um preço melhor (raramente). As melhorias de preços acontecem mais na NYSE ao abrir ou fechar porque o especialista vai encontrar um preço que pode corresponder à maioria dos pedidos. As ordens de limite estão no mercado se não forem executadas. Eles serão preenchidos somente se uma partida com outra ordem puder ser feita. As ordens de limite são a ordem mais popular nas empresas de comércio de proprietários porque limitam o risco de erros. 2.4 Pedidos de mercado Um pedido de mercado é uma ordem para comprar ou vender uma garantia ao melhor preço disponível. As ordens de compra de mercado são preenchidas com a ordem limite disponível no mercado. As ordens de mercado podem ser muito perigosas por muitos motivos. Uma grande preocupação é que você não tem controle sobre o preço que você obtém. Em alguns casos, os fabricantes de mercado desonesto e os negociantes podem cancelar e mover suas ordens de limite se eles veem uma grande ordem. Além disso, há uma grande diferença entre comprar 1000 ações e 10000 ações, mas às vezes é fácil inserir erroneamente 0. São chamados de erros de tecla e eles acontecem o tempo todo no mercado. Recentemente, em dezembro de 2005, um comerciante japonês perdeu centenas de milhões de dólares por causa de um erro de tecla. Os comerciantes que usam ordens de mercado são impacientes e, normalmente, não pagam para ser impaciente com o mercado. Desestimamos fortemente o uso de ordens de mercado nas empresas de comércio de proprietários, pois existem formas menos arriscadas para obter execuções rápidas com ordens especiais de limite. 2.5 Posições longas Quando você está comprando ações, dizemos no jargão comercial que você está ficando comprando. Se você possui estoques, você diz que será longo esse estoque. Por exemplo, se você enviar um pedido de compra em 1000 ações da MSFT e preencher, agora você é comprável em 1000 partes (assumindo que não teve nenhuma tradestransaction anterior em MSFT). 2.6 Posições curtas É possível quando você troca vender ações que você não possui. Chamamos esse shorting. Você está emprestando o estoque com a intenção de vendê-lo no mercado e comprá-lo mais tarde a um preço mais baixo (obviamente, se o estoque continuar, você pagará um preço mais alto para comprá-lo e, portanto, perder dinheiro com a operação). Quando você vende ações que você não possui, você tem uma posição negativa nesse estoque e você é dito ser curto. Por exemplo, se você enviar uma ordem curta de 1000 Ações da MSFT e preencher, agora você é uma pequena parcela de 1000 (assumindo que você não teve nenhuma tradestransaction anterior em MSFT). Agora você tem 1.000 ações na sua posse. Venda a descoberto em uma ferramenta importante, que permite que os comerciantes aproveitem um preço decrescente de estoque (venda alta, baixa). Sem esta posição, os comerciantes não seriam capazes de ganhar dinheiro 50 do tempo. Como os preços das ações flutuam todos os dias, se um comerciante só pode demorar, ele ou ela vai perder pelo menos metade das oportunidades de ganhar dinheiro a cada dia. A maior parte do público investidor não sabe sobre vendas a descoberto. Isso resulta em uma longa tendência para os investimentos. As empresas comerciais têm mais conhecimento do que o público em geral nesta área. Finalmente, existem regras específicas que se aplicam a valores mobiliários de venda a descoberto que discutiremos mais adiante no curso. 2.7 Inventário Ao longo do dia, sua classificação de inventário mudará constantemente. Isso varia de uma quantidade positiva de ações que você possui para um valor negativo de ações de que você é inferior. Quando você não possui nenhum inventário ou nenhuma posição, dizemos no jargão comercial que você é plano. Portanto, se você não teve nenhuma execução em um estoque, você é dito ser plano. O conceito de LongShort e Flat é fundamental para negociação. Uma grande parte do curso de treinamento será baseado neste conceito que será abordado em detalhes à medida que o treinamento avança. 2.8 Histórico de lucros não realizado Toda vez que o NBBO de um estoque está em movimento e você tem uma posição nele, você está passando por um lucro ou prejuízo não realizado. Nós o chamamos de não realizado porque você ainda não fechou sua posição. No entanto, o lucro não realizado é uma visão realista do quanto você faria se você fechasse suas posições e fosse plano. 2.9 Realizado ProfitLoss Toda vez que uma transação é feita no lado oposto da sua posição atual (vendendo quando você está comprando ou comprando quando você é curto) você está percebendo um lucro ou uma perda. Por exemplo, se você tem 100 ações compridas em 11,23 e você vende 100 ações às 11,24, você está incorrendo em um lucro de 1 dólar. Isso é chamado de lucro realizado. Os lucros e perdas realizados estão acumulando o dia inteiro. Mercado de leilões O especialista 3.1 Mercado de leilões Um mercado de leilões é administrado por um especialista que é deus de suas ações em particular. A NYSE e a AMEX são exemplos de mercados de leilões. O especialista sabe tudo o que há para saber sobre o (s) estoque (s) que ele ou ela negocia. O trabalho principal de especialistas é combinar pedidos de compra e venda. 3.2 Características dos mercados de leilões Um especialista tem a autoridade para interromper a negociação em seu estoque, caso as condições garantam tal ação. As encomendas estão combinadas no que é conhecido como o livro especializado Se não houver ordens correspondentes no livro, o especialista pode comprar ou vender ações No entanto, se houver uma ordem no preço de mercado, o especialista deve preencher a ordem do inventário da instituição financeira que o emprega. O mercado concederá uma ação a uma instituição financeira, a instituição financeira contratará uma pessoa para ser O especialista para esse estoque Existe apenas um especialista por estoque, mas um especialista pode ter mais de um estoque agora é informatizado (Processamento eletrônico de pedidos) 3.3 O livro especialista Este livro que atualiza cada segundo exibe todas as ordens limitadas (lances e ofertas) Pedidos de mercado e pedidos de parada não são exibidos. Isso permite que você veja todas as ofertas e ofertas colocadas por todos os participantes. O preenchimento de pedidos não é necessariamente o primeiro a chegar, primeiro a ser servido, mas com novos regulamentos e processamento de pedidos eletrônicos, o favoritismo acontece com menos freqüência do que faz anos. 3.4 Responsabilidades do Especialista 3.4.1. Especialista como leiloeiro O especialista mostra continuamente as melhores ofertas e ofertas durante todo o dia de negociação. Essas citações são exibidas eletronicamente e qualquer pessoa pode acessá-las. O especialista mantém a ordem na multidão e interage com os agentes que representam os clientes. 3.4.2. O especialista como especialista do agente A é o agente de todos os pedidos SuperDOT (roteados eletronicamente). Um corretor de piso também pode optar por deixar um pedido com um especialista para representá-lo até que possa ser executado a um preço específico. Isso liberta os corretores para se concentrar em outras ordens que exigem sua atenção imediata. Como agente, um especialista assume as mesmas responsabilidades que um corretor. 3.4.3. Especialista como Catalyst Unique para a agência-leilão é o especialista como um canal de fluxo de pedidos. O especialista sabe quem tem interesse em um estoque e acompanha todos os interesses conhecidos. Como todos os compradores e vendedores estão sempre representados na multidão ao mesmo tempo, o especialista pode convidar todas as partes interessadas para que saibam o que ficou disponível no mercado. Ao dar atualizações a uma parte previamente interessada, um especialista ajuda as trocas ocorrem onde elas podem não acontecer. 3.4.4. Especialista como Especialistas Principais, para cumprir seu papel, concorda com várias obrigações. O primeiro é colocar e executar todos os pedidos dos clientes por conta própria. Na NYSE, ocorrem três transações entre quatro entre clientes, sem a participação capital do especialista. No saldo das transações, um especialista participa como principal, fornecendo capital e, assim, adicionando liquidez ao mercado. Enquanto eles não fornecem toda a liquidez para o mercado, ou determinam o preço final de uma ação, eles usam seu capital para colmatar lacunas temporárias na oferta e demanda e ajudar a reduzir a volatilidade dos preços ao amortizar o movimento de preços. Market Market market market 4.1 Mercado de comerciantes Um mercado de revendedores é aquele em que muitos participantes estão competindo um contra o outro publicando ofertas e ofertas diferentes. O NASDAQ é o mercado de revendedores mais importante do mundo onde as encomendas são preenchidas por fabricantes de mercado e ECNs. Qualquer mercado Over The Counter market ou totalmente eletrônico também é um mercado de revendedores. Ao contrário de um mercado de leilões, onde existe apenas um especialista por estoque, existem muitos fabricantes de mercado por estoque em um mercado de revendedores. 4.2 Market Makers Um fabricante de mercado é um comerciante individual empregado por uma instituição financeira para gerenciar o inventário da empresa de um determinado seguro. Eles mantêm seu inventário e usam-no para ganhar dinheiro com a empresa comprando e vendendo no mercado. A responsabilidade primária de um fabricante de mercado é fornecer liquidez ao mercado para fazer literalmente o mercado para fornecer um mercado fluente, seguindo as regras estabelecidas pelo FINRA e pela SEC. 4.3 Market Makers VS Prop Traders A diferença entre MMs e comerciantes nas empresas de comércio de proprietários é que os fabricantes de mercado têm mais dinheiro e mais experiência. Os MMs que são os mais poderosos em uma determinada segurança são comuns como os AXEs. Eles têm o mesmo objetivo que prop traders para fazer dinheiro negociando em tempo integral. No entanto, as restrições e responsabilidades do Market Makers que os comerciantes de suporte não possuem. 4.4 Restrições de Market Makers 1. Eles devem preencher ordens (ofertas, ofertas, compras e vendas) em uma base de primeiro a chegar, primeiro a ser servido. 2. Não podem preencher pedidos pré ou pós horário de mercado. 3. Eles não podem afastar-se de um preço de nível 1. (Requer mais detalhes) 4. Eles não podem comprar através de um preço anunciado 5. Eles devem aparecer em ambos os lados do nível 2 entre as 9h30 e as 16h. 4.5 Responsabilidades do Market Makers 1. Comprar e vender o que o público deseja (Isso se refere ao cliente de investimento médio do cliente de varejo) 2. Preencha as ordens institucionais (fundos mútuos, fundos de pensão, etc.) 3. Troque a conta da casa quando não estiverem fazendo 1 ou 2 4.6 Marcadores de mercado Fontes de renda 1. Eles ganham o mínimo dos clientes de varejo, as comissões são pequenas e, portanto, as ordens 2. A empresa ganha mais em comissões das instituições que pagam um prêmio por um comerciante superior para executar suas ordens 3 . O criador de mercado que a pessoa aproveita ao máximo ganha dinheiro na conta da casa. Sem priorização de responsabilidades, os clientes de varejo seriam ignorados e as ordens institucionais seriam executadas quando conveniente. Redes de Comunicação Eletrônica e Piscinas Negras 5.1 Redes de Comunicação Eletrônica As Redes de Comunicação Eletrônica são sistemas eletrônicos que exibem e combinam valores mobiliários de compra e venda de encomendas feitas em bolsas e balcão por fabricantes de mercado e comerciantes. A oferta mais alta e a oferta mais baixa são publicadas na estação de trabalho NASDAQ (National Association of Securities Dealers Automated Quotation) e distribuídas por fornecedores de informações em todo o mundo. Houve muita consolidação recentemente nos setores. O NASDAQ que operou a Supermontage comprou recentemente o Instinet e o Brut. A NYSE comprou o Archipelago. Outro exemplo é quando o NITE, um criador de mercado muito ativo, comprou o Direct Edge. As ECNs estão tornando o mercado mais líquido e competitivo. Nas empresas de comércio de proprietários, os comerciantes têm acesso direto a todas as principais cotações ECN e também podem postar ofertas e ofertas em todas essas ECNs. Eles são NASDAQ, ARCA, BATS, EDGA, EDGX e TRAC. 5.2 ECNs Características e Características Citações e Execução (quando há uma correspondência) são instantâneas Eles permitem postar lances e ofertas para anunciar no Nível II A postagem leva milissegundos para aparecer no nível 2 Não há cobrança para um comerciante publicar uma oferta ou Oferta, na verdade, o comerciante receberá um crédito se o pedido for preenchido. Os preenchimentos parciais são uma ocorrência comum com os ECNs mais populares. A maioria dos ECNs tem tipos de ordem IOC (Imediato ou Cancelar) 5.3 Pools escuros Os pools escuros são sistemas de comércio alternativo que não estão publicando Seu livro de pedidos publicamente. As piscinas escuras geralmente são usadas pelas instituições para tentar reduzir o impacto do mercado ao colocar grandes pedidos. As piscinas de liquidez escuras oferecem aos investidores institucionais muitas das eficiências associadas à negociação nos livros de pedidos de limites públicos de intercâmbio, mas sem mostrar as mãos para outros. Os pools de liquidez escuros evitam esse risco porque nem o preço nem a identidade da empresa comercial são exibidos. A maioria das piscinas escuras também oferecem negociação de algoritmos avançados para melhorar as chances de execuções de grandes pedidos. Como não há nenhum livro, o intervalo de execução é baseado na NBBO para evitar impressões fora do mercado. Veja o manual sobre ECNs e Dark Pools Estratégias de roteamento Ferramentas básicas de software e conceitos de negociação 6.1 Nível 2 um nível além Com o alto número de participantes no mercado e Todos os diferentes intercâmbios e ECNs, as ordens devem ser organizadas de forma a facilitar o acesso à informação. As janelas de nível 2 são usadas por todos os participantes ativos e sérios do mercado para acessar informações sobre ordens limitadas em ações específicas, não importa o intercâmbio ou ECNs nas quais eles estão negociando. No nível 2, todos os marcadores de mercado e ECNs limitam ordens, com o mesmo preço e o mesmo lado (comprar ou vender), são chamados de jogadores do nível, os jogadores são fabricantes de mercado ou ECNs e o nível é o preço específico . Em um estoque, o nível mais alto de bidask fornecido por um ou mais ECN chamou o BidAsk Nível 1. O número total de compartilhamentos em um nível específico é chamado de Tamanho desse nível. O Nível 2 é tela mostrando os Níveis de Licitação no lado esquerdo e os Níveis de Oferta no lado direito. Aqui está uma imagem de uma tela de nível 2: a partir da parte superior esquerda, aqui está o que você vê na janela de estoque acima: nome da empresa (Microsoft Corp). Símbolo do estoque. Uma seta para cima que significa que o estoque está em queda A mudança de preço em relação ao preço de fechamento anterior L. O atual preço intradiário de comércio mais baixo. H. O atual preço intradiário de oferta alta. Volume. Número de ações negociadas desde o início do dia Número de ações Mercado de Execução Cada novo comércio no mercado está aparecendo no topo Os comerciantes o vinculam à sua janela de Nível 2. Podemos colocar mais de um símbolo. Podemos filtrar por tamanho, por mercado, etc. A janela Tempo e Vendas (à direita) é muito importante ao combiná-lo com a tela de nível 2. Ele fornece informações sobre os últimos negócios que foram feitos no estoque. O tamanho e o mercado são muito importantes porque eles lhe dão informações sobre onde você deve fazer seu pedido para obter uma melhor execução. A cor fornece informações sobre o lado em que os negócios são feitos: sendo verde a oferta e o vermelho sendo a oferta. Uma impressão branca é um comércio entre o lance e a oferta, que também é chamado de ponto médio. Todas as informações na janela TampS são freqüentemente chamadas de fita. 6.2 Leitura de fita Leitura de fita refere-se a obter informações cruciais e a ler entre as linhas da janela TampS. Os comerciantes devem ajustar seus pedidos em tempo real de acordo com todos os negócios no tempo e nas vendas. O ritmo no qual os negócios são executados em um ECNexchange específico ou onde eles são executados também é referido como o fluxo de pedidos. Por exemplo, um comerciante poderia dizer que há muito fluxo de pedidos no ARCA ou muito fluxo de pedidos no lance. 6.3 Monitor de negociação e Resumo de posição O monitor de negociação é uma janela que mostra ordens e execuções. Você pode selecionar todos os pedidos, apenas pedidos abertos, execuções ou execuções de dias anteriores. Cada linha detalha uma ordem diferente. A classificação e a filtragem podem ser feitas quando há muitas delas. A janela de resumo da posição mostra as posições atuais nos estoques. Por padrão, as posições longas são azuis e as posições curtas são vermelhas e entre parênteses. Existe uma opção para exibir apenas ações com posições ativas. A classificação e a filtragem também podem ser feitas aqui. 6.4 First in First out (FIFO) The concept of FIFO means that in a list, the first one to come is the first one to be served. ECNs work on the FIFO principle. For example, if on NASDAQ there are 3 pending bids of 1000 shares at 25.10, NSDQ will show 30 on the Level 2. If somebody sells 500 shares to NSDQ then the first order of 1000 that was submitted will be partially filled and 500 shares will remain on top of the list. At that time the Level 2 will show 25 on NSDQ. A specific ECN is based on FIFO. However the whole Level 2 does not work like FIFO. For example if you send an offer on NSDQ for 1000 shares of MSFT at 25.11, somebody else could send another offer at 25.11 after you on ARCA and if the next trade happens on ARCA he will sell before you That concept is very important when you come to decide which ECN to use based on how trades are made on a specific stock. 6.5 Volume The volume is the total number of shares executed on one stock since the beginning of the day. It is a good indication of the level of activity when you compare it to previous day average volume on the same stock or other stocks average volume. If you traded 50k volume on a stock that has 500k volume during the days you did not trade 10 of the volume but only about 5 since one trade always has two sides. 6.6 Liquidity Liquidity refers to the ability to buy or sell an asset quickly and in large volume without substantially affecting the assets price. Shares in large blue-chip stocks like Citigroup or General Electric are liquid because they are actively traded and there are always substantial buyers and sellers on the bid and offer. The notion of adding liquidity therefore refers to adding pending orders to the market. Removing liquidity refers to take it away from the market by removing limit orders. Market orders are always removing liquidity. Limit orders are removing liquidity if the bidoffer price is equal or higherlower than the current offerbid on the ECN they are submitted to. While volume can be a good indication of liquidity, two stocks with the same volume can have a liquidity that is completely different. 6.7 Rip, Tank, Swipe A Swipe is the action of taking all the liquidity available on the bid or the offer in a single transaction. For example if a stock has a bid of 25.10 and an offer of 25.11 and there are a total of 14200 shares for all participants on the offer, A market maker could decide, the price being too low, to buy everything at 25.11 with a single order. Normally he will then place a buy order at 25.11 and the bid-ask will now be 25.11 to 25.12. A Rip is a sudden increase in price on a particular stock. When that happens, all the trades are happening on the offer (active buying on the stock) and market makers and ECNs are showing higher bid and offer for the stock. More than one Swipe can happen on a rip. Rips usually happen when there is a unexpected good news on the stock. A tank is the opposite of a rip and it happens when the stock is going lower because almost every trade happens at the bid and Market Makers and ECNs are lowering their bid and offer. More than one Swipe can happen on a tank. Tanks usually happen when there is an unexpected bad news on the stock. The main aspect of Rips and Tanks is that they happen so quickly that most traders have no time to react. Losing 5 cents on a tank when you are long is different than losing slowly cent by cent when the stock is going down. 6.8 Volatility Volatility refers to how much movement there is in a stock. The more volatile the stock the more it is going up and down. More volatile stocks are this riskier it can be for traders but they can also be good opportunities for profit. The volatility of the market is also important. On slow moving days where the market is not volatile, traders should not try to go for the long shot. The VIX is the volatility index measuring the implied volatility from all the options traded in Chicago. The level of the VIX will tell you how much the market is volatile. Normally when the market is going down and there is fear among participants the VIX is going up. VIX is going down when the market is stable or going up slowly. 6.9 Gateways A gateway is a trading route. Each individual ECN is a Gateway. NSDQ is a gateway and BATS is also a gateway. When a connection to a specific gateway fails, no order can be sent or cancelled. Therefore the risk controllers need to handle all the orders by phone. The gateway itself can also fail. In that case no trader in the world can send or cancel orders. 6.10 Execution System The execution system sends confirmation of pending, filled and cancelled orders to the market participants for a specific ECN. The Proprietary Trading Firms Execution System is sending back confirmations concerning all the consolidated gateways to all the traders at Proprietary Trading Firms and then, modifies each account properly. 6.11 Books A book is the name used for the window containing orders information on a specific gateway. When you have this information available, you say that you have the book. At Proprietary Trading Firms we have access to the NASDAQ book, the Arca Book, The Bats book, the EdgX Book, the EdgA Book and the New York Book. An ECN book is like a level 2 but shows the information for only one ECN. Therefore individual orders on the same price level can be shown in detail instead of being combined. Such a feature is available for the NASDAQ book if you subscribe to it online. 6.12 Retail Traders and Prop Trader Nowadays most traders have the ability to access all ECNs and to send order to each one of them. However, most traders are retail trader. Retail traders are like the traders at Proprietary Trading Firms except that they trade from home with their own capital and a broker. They normally pay high commission relative to the prop trading world. Also, they normally dont receive rebates from ECNs (more on that later). They therefore need a lot of capital and a lot of experience. Proprietary traders use capital from a trading firm and they share the profits they make trading the market. The Job of proprietary trader is to watch what is happening on different Level 2 and Time amp Sales windows for specific stocks and send orders that allow being long or short at a good price. It might seem like a simple definition but recognizing opportunities and good prices are very complex. It will take some time to develop that instinct to find those price points. You need to buy low and sell high. However, before you can do that you need to know what is high and what is low In some market conditions you might want to buy high and sell higher. Experience will teach proprietary traders when to send their order, at what price and on what gateway based on the information available. There are many buyers and sellers on the market and they dont always see each other. Proprietary traders buy from active sellers who dont have enough information and market access tools to know that there are also active buyers in the market. Proprietary traders are making money because they facilitate trading between uninformed traders. The profit they make is basically the average difference between the bid and the offer. 6.13 Arbitrage Arbitrage refers to instantaneous and risk free profit. It is basically like picking up money that you find on the sidewalk. There are many types of arbitrage. Interexchange arbitrage happens when a stock is trading on more than one exchange. There is a chance that a participant on one exchange bid higher than the ask price on the other exchange. In this situation all you have to do is take the offer price on one exchange and sell at the bid price on the other. This is called pure arbitrage. However unless you are able to send 2 orders at the same time you always have the risk for the bid to be cancelled before you have time to get it. Semi-arbitrage is more common and we take advantage of it almost every day at Proprietary Trading Firms. This happens when there are people selling on an exchange (not offering but selling at the bid) and other people are buying on another exchange (taking the offer) while bid and offer are the same on both exchange. If there are not too many orders on the level 1 bid and ask this is normally a quick way to make money by buying from the sellers on exchange A and selling to the buyers on exchange B. There are many other types of arbitrage like risk arbitrage, statistical arbitrage, index arbitrage, etc. More information can be found on the internet and in Microstructure of the Financial Market by Larry Harris. 6.14 Lots, Round Lots, Odd Lots Lots refer to a specific standardized number of shares. 100 shares is usually the smallest regular lot traded on the different stock exchange. Round lots orders or trades refer to a quantity of shares in multiple of 100, for example 1200 shares. Odd lots are the opposite, for example 1238 shares. The expression can also be used in other circumstances, like buying in 1k 5k or 10k lots. It is illegal as a prop trader to enter a position with an odd lot. However if you have been partially filled and have an odd lot position you can exit it legally. 6.15 Cross Lock We say that the market is locked when the bid on one exchange or ECN is equal to the ask on another ECN or exchange. That is to say that there is a limit order at the bid on a specific ECN or Market Maker that has an equal price to a limit order on the offer. Only some ECN allow locking the market. Locking the market is a common practice on small stocks on the NASDAQ. It sometimes also happens on the NYSE. It used to be that when the market was locked you could see it on the level 2. Nowadays the ECN that is creating the locked market is not allowed to display the quote on the level 2. The only way to know that a market is locked is to send a small order in the opposite side to the ECN we expect to be locking and get a fill. Crossed markets happen when the bid price on one exchange or ECN is superior to the ask price on another ECN or exchange. This is pure arbitrage and does not happen too often. It is also good to note that it is rarely on big orders. Most ECN and dark pools prevent executions outside of the NBBO. 6.16 Rebates Now that you know about ECNs, Level 2 and all the related concepts, the subject of rebates can be discussed. Rebates are part of some type of profit sharing program with the ECNs. They are an incentive to add liquidity to the market. To encourage people to add liquidity, ECNs pay rebates to the market participants that are adding liquidity. They pay around 2 for each 1000 shares that add liquidity (rebates are different for every ECN). Conversely, they are charging around 3 to remove liquidity from the market. Therefore when a trade happens, they get 3 from the liquidity remover, pay 2 to the liquidity adder, and keep 1 for themselves. Rebates are more popular on the NASDAQ and they are a lot lower on the NYSE. Without rebates, the market would be a lot less liquid. Rebates are constantly changing and the managers can provide a sheet to you with all the details. This is called the rebates Schedule. Now you probably know why people are locking the market. This is because you can make money by buying and selling at the same price if you add liquidity on both sides. The more shares you trade and the more you will realize that this can add up pretty fast. For a good trader it is not hard to make over 500 dollars in rebates every day. However, since you are playing with more shares with a smaller profit margin your loss can be considerable when you are on the wrong side. Rebate trading with slow moving stocks is a good way to learn how to trade when you first start. It lets you make a lot of trades on different ECNs while you dont necessarily have to know all the time which way the market is going. As you are gaining experience, after watching the level 2 for weeks you will start to get a feel for the right side to play the stock. You will start to see patterns that you were not able to notice before. A lot of trading strategies rely on rebates and we will elaborate on them later in the course. Market Indicators Information Concepts 7.1 Indexes and Averages For day trading purposes we will refer to an average or an index as meaning the same thing. There are slight technical differences between the two however, they are not relevant to day trading. So, what is an average It is a group of stocks averaged out to help us get a general indication of market sentiment. There are many different indexesaverages: The most widely known ones are: DJIA Dow Jones Industrial Average SampP 500 Standard and Poors 500 NASDAQ Composite All the NASDAQ stocks NASDAQ 100 NASDAQ top 100 Russell 2000 Small cap stocks 7.2 Dow Jones It is an old established private company, which provides many services to traders and the financial community. They do market research come up with averages and other market indicators. The reason the DJIA is so widely known and powerful is because of the reputation and credentials of the company. They are known for strong and reliable analysis. Anyone can come up with an index. However, the reason we all look at the Dow is because they are well known and established. The Dow Jones is not just NYSE stocks. MSFT and INTC are also in the average. Many traders make the mistake that DJIA is the NYSE. It is not. There are 30 stocks in the Dow Jones Industrial Average. They pick leaders in each of the different sectors. Example: who is the leader in soft drinks Coca-Cola. And yes, they are in the Dow 30. Who is the leader in fast food McDonalds is also in the Dow. How about building and home renovations Home Depot is also in the Dow. Who is the leader in retail Wal-Mart, which is also in the Dow. 7.3 SampP 500 SampP is another private company like Dow Jones, which does financial research and creates indexes. SampP stands for Standard and Poors. The SampP 500 is the most widely watched index in the world. The 500 stocks that SampP have selected to be in this index are also leaders in their fields. Once a stock is in the SampP 500 they will stay there until they are no longer a leader in the field (decided by the SampP). Standard amp Poors is widely recognized as a leading provider of indices. SampP indices are used by investors around the globe for investment performance measurement and as the basis for a wide range of financial instruments. The SampP 500 Index is strongly representative of the sentiment of the broad, or general, stock market. Widely regarded as the standard for measuring large-cap US stock market performance, this popular index includes a representative sample of leading companies in leading industries. Important points about the SampP 500: Most liquid instrument in the world after the US dollar All fund managers are compared to the SampP 500 If you add a stock to the SampP 500 that stock goes through the roof. (Go and find out which stocks have recently been added to the SampP 500, and how much the stock went up the day they announced that they were going to be added to the index.) This is because many index fund managers will have to buy the stock Why are stocks dropped from the SampP 500 Usually because they were merged or bought out by another company already in the index. 7.4 Futures A futures contract is a trade made in the present, for an item that will be delivered at a later date. In other words, two traders agree on a price, one of them agrees to buy, and one of them agrees to sell. The actual item being traded does not change hands. It is agreed that the seller will provide the item, and the buyer will take delivery of the item at a pre-set date in the future, for a price, which is agreed upon at the present time. In simplest terms, futures are traded by agreeing on a price in the present, for an item that will not actually be ready for delivery until a specified date in the future. At the Chicago Mercantile Exchange, futures contracts are traded on the SampP 500 Index. This is all students need to know, and arguably more than they need to know in order to use the SampP 500 Futures as a leading indicator. 7.5 SampP 500 Futures SampP 500 futures can be a powerful leading indicator for stock traders. After the US Dollar, they are the most liquid trading vehicles in the world and as such, they represent the sentiment of the broadest array of market participants at any one given time. By observing the price action of the SampP 500 futures, traders will notice that more often than not, stock sectors and individual stocks will tend to follow the movement of the futures. Perceptive traders will learn to recognize this correlation, and use it to successfully anticipate price movements. The symbol for the SampP 500 futures is SP XX (the first x being the letter representing the quarter in which the futures expire and the second x being the last digit of the year in which the futures expire) The letters H, M,U, Z represent the last month of the four quarters (March, June, September, and December) respectively The electronically traded SampP futures follow the same formula, ES XX The electronically trade NASDAQ 100 futures use the symbol NQ XX Futures expire on the third Friday of the last month of each quarter the third Friday of every third month 7.6 Squawk Box Many trading offices around the world will use something called a squawk box to acquire more knowledge about where buying and selling pressures are coming from. The name refers back to classic boxes which offices use to use attached to a telephone which had microphones on the trading floor. An announcer would call out all the major players on the floor and their actions. This was to remove some of the edge that the floor traders had in reaction quickly to order flow when the back offices had to wait for quotes. This system was extremely costly and not the most reliable. The squawk box went through many evolutions until it has reached todays standard: Ben the Squawk. So what is Ben the Squawk The better question to ask is who is Ben Ben Lichtenstein is a Pit announcer who announces from the SampP500 futures pit on the Chicago Mercantile Exchange. He calls out all the major transaction and what he sees happening on the floor. Lets go through his calls and what they mean. The first thing to understand is there are two types of pit traders. Locals : Locals are either self-funded or have money from some unknown resource or investor somewhere that funds them. They may represent someone else but it is not advertised. Paper : Paper represents institutional traders such as those who are funded by big banks, pension funds or other large financial institutions. Now it is important to understand that locals and paper are working with each other most of the time. If one major paper player buys, you can expect others to push with him. Locals also have no choice to gang up against paper in the pits since they are financially limited. There is however, one exception to the rule. When Ben says Ive got one of my top Teners stepping into the pit be very attentive. A top Teners is one of the top 10 SampP500 futures traders in the world. These traders are experienced, extremely aggressive and most importantly, extremely well funded. No matter what their strategy is, expect the market to move in a direction. Certain traders place only one trade a day or none at all waiting for a top Teners. So now that we know the players in the pit, we have to learn the calls and what exactly Ben is saying. You will consistently hear Ben say things like paper comes in and buys the halfs 200 times. This means an institutional buyer came in and bought 200 contracts of the .50 price. Lets go through the list of pricing calls. Ben calls out the ticks of the SampP futures. 4 ticks make a point. We are interested in hearing at which tick the market is. Twenties and thirties: 950. 25 Seventies or eighties: 950. 75 Generally Ben will always be calling out the bid and offers. He will say something like 6 even bid at a half . This could indicate a 956.00 bid and an offer at 956.50. Lets continue with the calls. Paper comes in and sells 500 evens, paper take them, more to sell, aggressive sellers This means an institutional trader comes in and sells 500 contract at the evens and locals are trying to push back against him. Problem is he is aggressive and wants to push the markets lower. Locals are stuck they need to buy This means the locals are stuck in a short position and have to buy the contracts to unravel their positions. Watch for a short squeeze. Im seeing those low prints coming in right now This means a paper or local got stopped out of their position and had to sell market. This can sometimes show a bounce coming in. Goldman is looking Goldman looking OR Goldmans on the phone, looks like an order Watch out for a large order to come in. Any time a large paper gets excited, it means a move. Anytime a trader gets on the phone, this means an order is coming in from the back office. Every trader uses the squawk in his or her own way. Certain traders find it clouds their judgment and others cannot trade without it. The squawk box is extremely daunting at first and can be hard to understand but with experience, Bens words become images and a clear and concise idea of what the traders in the pit are doing becomes possible. 7.7 General Market Information Concepts There is so much information when you trade the market that knowing which one to consider and how to work with it is essential. In this section we will concentrate on information outside your Trading Software. You can get information on Bloomberg, Yahoo Finance, The Squawk Box, and Trade the News. 7.7.1. News Generally there are two type of news: news affecting the market in general and news affecting you stock or its sector. The first thing you need to know is that it is almost impossible to be fast enough to make money by buying a stock immediately after a good news release. This can be largely explained by the concept of market efficiency. There are at all times hundreds of traders watching the same stocks and screening for news on it. As soon as there is a news event they all react and the stock moves instantly. Moreover the exact hour when news happens is most often known in advance because of SEC regulation on Earning releases and Press Releases. We could even say that it would be more advisable to sell on good news and buy on bad news since most people tend to overreact. Traders with experience will be able to judge if most of the buying or selling on a news release has been done. Therefore they will know if the move is over or if there will be more to come. Watching the order flow on a news event is essential since the action is big and fast. Because of all those reasons it is preferable not to trade stocks with news when you are still a trainee. 7.7.2. Correlation Correlation is a statistical concept to evaluate the relation between two data series. Correlation varies from -1 to 1. The more positive the correlation is the more the data is moving in tandem. For example if ABC and CDE stock have a correlation of 1, that means that if ABC goes up 1 CDE will also go up 1. There are no stocks like that in the market. However there are correlations of 60 or 70. Meaning 60 of the movement in one is explained by the movement in the other one. There is also negative correlation for example, Oil price can be negatively correlated with airlines stocks. The more you will watch the market and the more you will learn about different correlation relations. You will also learn which stocks react first on good news for the sector. These stocks are called the leaders of the sectors. The last ones to moves are called the lagers. On average all stocks are normally correlated 0.6 with the market. That explains why they all move in tandem. That 60 of all the stock movements is called the Systematic risk and cannot be reduced by diversification alone. The remaining 40 has one part explained by the sector and the other by the stock itself. That part is called non systematic risk. This notion is essential since it explains why some stocks are going down even if they have good news. If the market is tanking dont expect your stock to go up as much on good news as if the market was stable. 7.7.3. Expectations The stock market is not based on current data but on expectation about the future value. That is to say that most current data is already included in the price of the stock. In the trading jargon we say it is baked in the cake. If market participants assume that Microsoft will have good earning they will buy it in advance to profit from it and they will therefore make the price go up. On the news the stock is already at a high price and if the profit are very good but less than the people who bought it expected then the stock will go down. That is why there is a popular adage on Wall Street that says: Buy the Rumors, Sell on the Fact. If you dont understand the concept of expectation you will be surprised by stocks and markets movements when there is a news announcement 7.7.4. Fed Meeting When the Federal Open Market Committee (FOMC) meets to modify the interest rate in the US there is normally a lot of activity and movements on the news. Since traders know in advance at what time the news will be out they tend to be flat before. On the news, they buy or sell according to what they think the market will do. As a proprietary trader you should be very prudent and not carry big positions before the announcement. 7.7.5. Stock Screeners Stock screeners are software that allows you to find stocks based on different criteria. Yahoo Finance and moneycentral have good Stock Screeners. When you are looking for stocks today trade you should at first require the stock to have volume. 1 million is normally the minimal. Then you should choose a range. You can also search stocks per sector. The good traders will always find new stocks to trade. You would be surprised how stocks can changed in a year as much in price, patterns and volume. The stocks you are trading today might not be tradable in two weeks. Moreover when there is a lot of money on a stock traders tend to all jump on it and therefore it becomes efficient and less money can be made if you are slower. Another good way to find stocks is to look at the most active list on the Yahoo Finance. While those stocks are often stocks with news they are good to keep in mind as the interest and volume might still be there for a week or two. Risk Management Risk is a measurable possibility or probability of losing or not gaining value. Risk is differentiated from uncertainty, which is not measurable. In trading there are many types of risk. Here is a list: Risk of a movement of the market against your position Risk of a news affecting your stock in the wrong direction Risk of liquidity going away when you have many shares to trade to close your position Risk of power loss Risk of software failure Risk of gateway failure Risk of Network failure Risk of hot keys errors 8.2 Risk Management The goal of a proprietary trader is to reduce risk. This is called risk management. Here is a list essential to good risk management: Limit averaging down if the market is going against you. Never average down more than once and do it on sharp moves and not on slow moves. Try to trade more slowly when you are close to the Max Loss point since Max Loss will keep you from trading and making money for the rest of the trading session. Cut your loss at the market when you reach your Max Loss Limit or your Use Time Stops for your trade. That is if you stock does not move and you are waiting for a long time you should try to get out and trade stock on which you will make more trades and money. Use mental trailing stops: do not allow a big winning position to come back and become a losing one. Do not accumulate more share than the stock can handle. Organized hotkeys properly and use only the num pad, the F keys, the Shift and the Ctrl. Pay attention to the size of your average winning trade and make sure it is bigger then your average losing trade. If your losers are too big that means you are using the wrong exit strategy. Look at your win loss ratio. Make sure you read all the news on the stocks you trade before the market opens. Watch the SampP 500 futures closely. Reduce your trading size when you are on a bad streak. Avoid trading too many stocks at the same time. Avoid leaving your computer when you have positions or pending orders. 8.3 Extended Hours Trading Risk Disclosure 8.3.1. Risk of Lower Liquidity: Liquidity refers to the ability of market participants to buy and sell securities. The more orders there are available in a market, the greater the liquidity. Liquidity is significant because with it, it is easier for traders to buy or sell securities, and as well, it is more likely for the trader in question to pay or receive a competitive price for securities bought or sold. There will be lower liquidity in extended hours trading as compared to regular market hours simply because the tremendous amount of buying and selling done by the market makers and specialists is no longer part of the equation. As a result, your order may only be partially executed, or not at all. 8.3.2. Risk of Higher Volatility: Volatility refers to the changes in price that securities undergo during trading. In most cases the higher the volatility of a security, the greater the price swings, the greater the potential for large profits and large loss. There may be increased volatility in extended hours trading than after the regular trading session has closed and as a result trader orders may only be partially executed, or not at all. Furthermore, traders will often run the risk of receiving a price in extended hours trading inferior to one likely to be obtained during regular market hours. 8.3.3. Risk of Changing Prices: The price of securities traded in extended hours trading may not reflect the prices either at the end of regular market hours, or upon the opening of the market the next morning. As a result, traders receive an inferior (or admittedly a superior) price in extended hours trading than you would during regular market hours. 8.3.4. Risk of Unlinked Markets: Depending on the extended hours trading system or the time of day the prices displayed on an extended hours trading system may not accurately reflect prices available worldwide. There may be substantially different prices available on other concurrently operating extended hours trading systems dealing in the same securities. So once again, the price the trader may receive for a particular security may be inferior or, again superior, to a price available on another extended hours trading system. 8.3.5. Risk of News Announcements: Issuers normally make news announcements likely to affect the price of their security after regular market hours have concluded. Important financial information is similarly announced outside of regular market hours to foment stability of trading. In extended hours trading these announcements occur thus during lower-volume trading when this is combined with the naturally higher volatility it will likely cause an exaggerated and unsustainable effect on the price of that security. 8.3.6. Risk of Wider Spreads: The spread refers to the difference in price between what you can buy a security for and what you can sell it for. Lower liquidity and higher volatility in extended hours trading may result in wider than normal spreads for a particular security. 8.4 Max Loss, Max Shares and Buying Power 8.4.1. Max Loss Proprietary Trading Firms is using a statistical system to come up with a maximum day trading loss for each trader. Depending on your previous performance as a trader, you Max Loss will vary. The Max Loss is the maximum amount you will be allowed to lose in a day before you have to stop trading. If your Max Loss is 50 Head Office will cover your positions if you are losing 45 (90 of your 50 Max Loss). When you are in a situation where you are close to reach your Max Loss you will always be advised before your positions are closed. 8.4.2. Buying Power As you start as a trainee you will be provided with a minimal Buying Power (BP). Buying Power is the maximal dollar amount you can have for all the positions. You will not be able to buy more than what your BP will allow you. This buying power will increase as your trading profit increases. Buying Power Improvement is done by the manager on a case by case analysis of your situation. If you feel your Buying Power is too low, you should discuss about it with him. You have to understand that traders have a bigger BP because they are making more money on the market and not the opposite. Giving a high BP to somebody with not enough experience could be very dangerous. 8.4.3. Max Shares Max Shares is the maximum number of shares you can send an order for. For example is your Max shares is 300 you will never be able to send an order for 400 shares or more. You can post more than one order for 300 shares and get filled on all of them if there is a swipe. However you will have to get out of this position by more than one order. Traders that are using multiple orders to intentionally get double and triple fills will be disciplined. Max share are there to protect you before you get experimented enough to manage more shares. Max Shares is also modified on a case by case basis. Rules and Compliance 9.1 Regulations There are many regulations in the financial market to make it fair for public investors. With no regulation the public would quickly lose confidence in the fairness of the market. In the U. S. there are two main organizations that are responsible for regulating the stock market, The Securities and Exchange Commission (SEC) and the The Financial Industry Regulatory Authority (FINRA). 9.2 The SEC The SEC is a federal agency created by the Securities Exchange Act of 1934 to administer that act and the Securities Act of 1933, formerly carried out by the Federal Trade Commission. The statutes administered by the SEC are designed to promote full public disclosure and protect the investing public against malpractice in the securities markets. Their mission is therefore to protect investors and maintain the integrity of the securities markets. More information on the SEC can be found on their website at sec. gov . 9.3 The FINRA The Financial Industry Regulatory Authority (FINRA) is a self-regulatory organisation (SRO) under the Securities Exchange Act of 1934, successor to the National Association of Securities Dealers, Inc. (NASD) FINRA is responsible for regulatory oversight of all securities firms that do business with the public professional training, testing and licensing of registered persons arbitration and mediation market regulation by contract for The NASDAQ Stock Market, Inc. the American Stock Exchange LLC, and the International Securities Exchange, LLC and industry utilities, FINRA was formed by a consolidation of the enforcement arm of the New York Stock Exchange, NYSE Regulation, Inc. and the NASD. The merger was approved by the United States Securities and Exchange Commission (SEC) on July 26, 2007. With respect to the regulatory agency merger, SEC Chairman Chris Cox said, 8220The consolidation of NASD8217s and NYSE8217s member firm regulatory functions is an important step toward making our self-regulatory system not only more efficient, but more effective in protecting investors. The Commission will work closely with FINRA to eliminate unnecessarily duplicative regulation, including consolidating and strengthening what until now have been two different member rulebooks and two different enforcement systems 9.4 Regulations at Proprietary Trading Firms As a trader at Proprietary Trading Firms you have to comply with all the Rules and Regulation of the SEC and FINRA. Any trader refusing to trade according to the rules and regulations will be terminated immediately. Proprietary Trading Firms has terminated traders before. Compliance is a serious issue as it jeopardizes the reputation and existence of the whole company Traders with bad intention will always try to find ways not to follow the rules and make money illegally. However there are many tools that the managers of Proprietary Trading Firms are using to find out about those traders. Head office will also look at the list of trades for any suspicious profit. The SEC and FINRA are also constantly monitoring all the communications in all trading firms including Proprietary Trading Firms. 9.5 The main rules that traders will have to follow are: Do not engage in Wash Trading Do not trade with other traders inside the firm intentionally Do not short IPO in the first 30 days of trading Do not manipulate the closing price Do not trade personal account with another broker during working hours Do not contact people to make trading recommendations 9.6 Broken Trades Trades can be broken or cancelled if they were caused by a software mistake and if they are too much away from the market. The FINRA makes decisions on NASDAQ and Market makers, and ECNs have jurisdiction over trade breaks on trades made through their execution system. You will sometimes see on the ticker trades that are obviously out of the market. Most of them are cancelled. However Illegal trades cannot be broken because in general, one participant in the trade entered into the trade in good faith and will not want it broken as such, it would be unfair for the SEC or the FINRA to break the trade. There are four main types of illegal trades: Trading on insider information. Not declaring a short sell. If a trader goes from a long position to a short position (accidentally or on purpose) without being flat in between, the trader has not declared the short sell because Proprietary Trading Firms Trader placed the offers as normal offers and not short offers. There is now a mechanism in Proprietary Trading Firms Trader to avoid that to happen Short selling an IPO within the first 30 days Wash trading: Intentionally buying and selling within Proprietary Trading Firms is not permitted it may happen from time to time however, intentional wash trading is illegal. In general, wash trading benefits one trader at the expense of another Chapter 10 Trading Psychology 10.1 Mindset It is difficult for beginning traders to accept, but the tools that are essential to successful Day trading do not necessarily come in the form of strategies but from having the right mind set. Experience offers substantial evidence of the importance of both focus and discipline but many new traders still find it hard to accept. Without focus and discipline, there is no point in learning strategies. Traders must be aware that day trading involves short-term, split-second decision making within a context that is often filled with contradictory information. So, the two main psychological skills that a trader must have are: the ability to remain focused the ability to remain disciplined. 10.2 Focus Opportunities can present themselves at any time and a successful trader will be able to remain focused throughout the trading day so they will be ready to take advantage of them. A focused trader can analyze opportunities based on strategy amp probability and then be able to execute the trade automatically due to well practiced keystroke skills and focus. 10.3 Discipline There is no secret or miracle method that works all the time. No matter how smart you are or how much you know about the market, DISCIPLINE is the key to your SUCCESS. What do we mean by DISCIPLINE Cutting losses every time a trade goes against you. Admitting that your entry point was wrong and exiting the trade immediately Scaling down when things are not going your way (Example: trading 1000 shares and scaling down to 500 share lots). Stop trading when you reach your Max Loss on the day Cutting losses is basic discipline and the key to become a successful trader. 10.4 Behaviors that leads to unsuccessful trading Refusing to define a loss. Not liquidating a losing trade, even after you have acknowledged the trades potential is greatly diminished. Getting locked into a specific opinion or belief about market direction. From a psychological perspective this is equivalent to trying to control the market with your expectation of what it will do: Im right, the market is wrong. Revenge-trading as if you were trying to get back at the market for what it took from you. Not reversing your position even when you clearly sense a change in market direction. Not following the rules of the trading system. Planning for a move or feeling one building, but then finding yourself immobilized to hit the bid or offer. Not acting on your instincts or intuition. Establishing a consistent pattern of trading success over a period of time, and then giving your winnings back to the market in one or two trades and starting the cycle over again. 10.5 Skills to be acquired Learning the dynamics of goal achievement so you can stay positively focused on what you want not what you fear. Learning how to recognize the skills you need to progress as a trader and then stay focused on the development of those skills, instead of the money, which is merely a by-product of your skills. Learning how to adapt to respond to fundamental changes in market conditions more readily. Identifying the amount of risk you are comfortable with 8211 your risk comfort level 8211 and then learn how to expand it in a way that is consistent with your ability to maintain an objective perspective of market activity. Learning how to execute your trades immediately upon your perception of an opportunity. Learning how to let the market tell you how much is enough, instead of assessing the potential from your personal value system of how much is enough. Learning how to structure your beliefs to control your perception of market movement. Learning how to achieve and maintain a state of objectivity. Learning how to recognize true intuitive information and then learning how to act on it consistently. 10.6 Goals Traders who set goals will be more successful than those who do not and, traders who record their goals and refer to them will be more successful than those who simply state goals. Start a Day Trading journal to keep track of your goals, your mistakes, your rules and your lessons. Characteristics goals should have: Goals need to be Specific so that they can be easy to describe and easy to Visualize Goals need to be Set at a High Level but on also need to be Realistic so that they can be Attainable It is easier to make a Commitment when a goal is Written than when its only a thought. There needs to be a Time Horizon for the goal to be reached and different Time Steps with objectives A Plan is required to know how we will reach each objective. 10.7 Emotions experienced when starting trading 10.7.1. Anger the stock moves against you as soon as you buy itshort sell it cant get into a position cant get out of a position hit a key and nothing happens execution system (NSDQ, ARCA, etc.) goes down 10.7.2. Frustration not getting hotkeys hitting the wrong key execution system goes down buying or selling when you dont intend to 10.7.3. Anticipation cant wait for a new trading day dreaming about the Level 2 windows waiting for a stock to reverse making profit and wanting to make more 10.7.4. IncredulityAmazement when you make a mistake and make money going from long to short and you make money Watching a stock go updown 1, 2, 5 or more points in a few secondsminutes. 10.7.5. Elation when you make your first real trade when you make your first real winning trade when you accurately predict a move in a stock and profit from it when you see your balance at the end of a profitable dayweekmonth when you see that you are doing much better in your second or third month 10.8 Getting Started 10.8.1. Dos and Donts Do stay positive Do stay inquisitive Do learn from every trade Do write a new rule in your journal every time you make an error Do stop any pattern that hinders your trading Dont beat yourself up theres always a great trade waiting 10.8.2. Daily Prep Read your rules daily Review your trading journal daily Leave your emotional challenges at home Let all your trades be either earning trades or learning trades (or both) Stay disciplined Stay focused 10.8.3. Money Management know what you are willing to risk and stick to it never double up on losers never take your loses home at the end of the day Develop your own style: keep a journal print your blotter every day to analyze it every night read everything do pre and post trading day preparation take responsibility for your own actions accept failure accept success Follow the Market: Focus on Level 2 pattern and order flow in the time and sales window the trend is your friend know the intraday trading cycles and your own trading cycle Use indicators, indices, relative strength, squawk, etc. 10.9 Psychological Hurdles not defining a loss before executing trades not taking a loss or a profit when the market has reached your exit point (on either the upside or the downside), you must take your profit or loss getting locked into a belief going into hope mode trading on inside information or taking a tip kamikaze trading euphoric trading regret trading revenge trading being more concerned abou t being right than making money trying to be perfect losing confidence not consistently applying your trading system not being in the right state of mind know that you can control some things and that you cannot control other thing, but stay positive 10.10 The 3PEPIPHANY Approach The 3Ps in the 3Pepiphany approach stands for: persistence, preservation and patience it represents both the advantages and disadvantages of rigidity in proprietary trading. 10.10.1. Persistence Persistence is being able to continue trading despite obstacles like frustration and low morale. Students will often forget that trading involves each minute of each trading day if there is to be any profit taking at all at the beginning and they will begin missing days or parts of trading days. Some students will come in late each morning or leave at lunch. Some will leave before the market close. Many traders forget that this process is a long one and that they should be prepared to remain without profits for several months. Often traders have not seriously considered the average period of time it takes to become profitable and they will decide to quit. On the other hand many times students will not know when to quit and will continue to throw good money after bad and dig themselves into a deeper intraday hole. Experienced and successful traders have often said that while it is important to be persistent, it is equally important not to be obstinate and to learn how to sit on ones hands or simply walk away. 10.10.2. Preservation Preservation is the most basic defensive mindset and must be adhered to from the beginning if there is to be any retention of experience and discovery of a trading style. No matter the amount of wealth a trader has, it will be difficult for him to justify spending thousands of dollars a week on trading. Traders who are serious about trading will have to adopt capital preservation as their primary short-term goal. Again, though, a balance must be struck as over-preservation can lead to a limiting of opportunities. Preservation is almost totally useless if it does not have a predetermined acceptable, maximum loss. 10.10.3. Patience Patience is essential for anyone hoping to become a successful proprietary trader. New students often trade aggressively for the first day or two as they familiarize themselves with the trading process. This is okay as it allows them to become acquainted with the different execution systems and allows them to practice their keystroke speed. However, traders must develop patience eventually and not jump into positions without reasons. Once patience is adopted the number of trades may drop but the traders net profit will increase. As well, when traders become profitable regularly their losses, while fewer, are often larger in size. 10.11 Battle Plans Battle plans are tremendously useful to new traders who have not yet found a trading style. They can adapt 3Pepiphany approach and quantify it to meet their individual needs. A battle plan will provide a self-imposed guideline on a trader who is too inexperienced to be able to read the concealed intricacy of sudden market manipulation and movement. When traders first start live trading in the practical class they should have some idea of what they are interested in trading. At that point, however it is too early to implement a restrictive battle plan as that would prevent them from exploring the market and finding securities that present learning opportunities. Volatile stocks should be eliminated. The initial battle plan should then include: Stocks not to play Sector(s) to explore Search Criteria for an ideal stock(s) to watch and trade for the course Once appropriate stocks have been found, and classes usually tend to gravitate to one or two stocks, the next step is to formulate an active battle plan to follow. Formulating the battle plan is only the first and easiest, phase. The battle plan should include maximum losses per trade, maximum daily losses, trailing-stop losses, objectives for the day and any other relevant, quantifiable goals. To be a successful trader one must accept that the majority of trades executed will be losing trades. By accepting this fact the trader will be better prepared to limit the negative impact of these trades will have on both equity and ego. A trader should always try to maintain a sense of control and following their battle plan will help them to achieve success. The battle plan also helps on the micro level. A trader should get into a trade with a reasonable expectation of a certain result. If they go long, it is in the assumption that the stock will be going up in price. They should immediately offer it out at the level (a reasonable level) they think it will go to. They should also have a maximum acceptable loss while they wait to see if the plan will come to profitable fruition, no more than 0.02share. Students should also understand where buying and selling occurs in certain market conditions. Assume for a moment that a trader has bought at the ask price and now intends to offer out the stock to sell also at the ask. The minute that the stock begins to tank, the trader should recognize that the trade has gone against him and he should attempt to sell at the bid in order to flatten out. The tendency for the inexperienced trader is to chase the stock down by posting offers at each price level during the process. NO ONE WILL BUY A STOCK AT THE ASK IF IT IS FALLING QUICKLY IN PRICE. The novice trader must remember that in order to minimize losses he must cover bad trades immediately by forcing a sell (if he is long) or forcing a buy (if he is short). The tendency to chase stocks up at the bid and down at the ask is referred to as the spend a quarter to save a nickel mindset. Novice traders, eager to save the spread by buying a stock at the bid, chase a stock up by placing a bid, then canceling as the price moves up to the next level and finally by placing another one. This process is repeated several times until, finally, the trader is filled. Why was this trader filled The stock quit moving and the more experienced traders, anxious to take their profits, sold to those unfortunate enough to be at the bid. NO ONE WILL SELL A STOCK AT THE BID IF IT IS RISING QUICKLY IN PRICE. Experienced traders will often say that the first step in becoming constantly profitable that they ceased to be shaken out of position by jiggles or sudden manipulation of price movements. When traders become more experienced their plan will become less rigid and may only include the name of the stock, the relevant research on it and a profit goal along with a maximum loss. The battle plan must be tailored to the individual and it must have a point to it. It must come from the trader. Traders who are forced to use a battle plan will most likely not be comfortable because they do not believe it is necessary. One of Proprietary Trading Firmss most successful traders once pointed out that people trade their personalities, which is the only reason a students trading plan should be theirs, not somebody elses. 10.12 General Trading Axioms Trade stocks that have good volume and are liquid you can get in and out quite easily. We suggest 1 million or more shares traded per day on average. Take consistent small profits instead of waiting for that one big trade. No overnight positions period. Limit losses (trade with discipline). Buy into strength and sell into strength by paying the ask price and offering at the ask. Have more than one reason for getting into a position. Do not trade stocks you are completely unfamiliar with. Focus on entry and exit points. Do not focus on profit or loss. Dont trade IPOs. Dont trade in the first 10-20 minutes if you are inexperienced seek direction first. Dont hope a stock will do something. Make decisions based on what the market is actually doing. Be very careful when averaging down. Have rules and stick to them. Discipline, discipline, discipline. 10.13 Other Trading Psychology Concepts 10.13.1. Transparency: Good traders are transparent people. They dont care about the opinions of other people if they know they are doing the right thing. They are not ashamed of their results even if they are bad. Hiding your mistakes is one way to say that you dont accept the full responsibility of them. It has been observed that good traders are people who accept the blame when something happens. That helps them to build a feeling of control. Trading is a field where everybody knows exactly how you perform. Proprietary Trading Firms encourages this situation because we know that real winners are the one who like open competition and who dont mind the results. People who like challenges and reach their goal are transparent. Moreover this attitude helps cooperation with managers. 10.13.2. Desires and Faith The desire to succeed is essential but it is not enough in itself. Only when you have the faith in yourself you will become successful. Even If you have strong desires, if you dont firmly belief that they will happen, they wont. If you have doubts in times of adversity you will abandon your goals too early and your fear of failure will become a reality without faith. You may have been really close to the goal. Nothing is impossible to the one who has faith. However faith is not easy to acquire. We can give you the desire but we cannot give you faith. This part must come from you. The trading level you will reach is proportional to the level of faith that you have. Faith is perhaps one of the highest forms of belief a person can possess it is a conviction. The reality is that it is hard to find people with faith because they are already successful somewhere else. The personality that makes good traders is the same personality that makes athletes, pop stars and successful business man. 10.13.3. Intuition, Experience, Feeling the Market Intuition is sometimes conceived by people like it is coming from nowhere. In fact intuition builds with experience. As a new trader, you wont have a lot of intuition when you start trading. As you watch the market everyday some patterns will creep into your subconscious. When the signs of those patterns are repeated, your subconscious will send a message to you conscious to warn you that something is about to happen. At the beginning you will feel strange and wont be able to act on this message. As you receive more of them you will start to act on it and make money. Eventually the goal is to extend that process until you feel the market like you feel your heartbeat when you just finished exercising. That is what we call feeling the market. Then you can say you have the market in your veins. You become one with the market 10.13.4. Instinctive people and Analysts People who rely more on their instinct and intuition and less on their conscious analysis make the best traders. The reason is because the market is normally very fast and you dont have time for conscious analysis. By the time your analysis is done the opportunity disappeared. That does not mean that there are no opportunities that can be analyzed, but most of the time the market is too fast for analysis. Moreover, people who analyze too much like to be more than 55 sure of their decision. In reality that is all that you need to be successful. Analysts will look for the 75 to 80 sure trade that happen only 2 or 3 times a day and they will miss all the other opportunities (55, 60 and 65). 10.13.5. Open Minded Traders are the best People who are open-minded make the best trader for many reasons. First they tend to consider more options and if the best decisions are uncommon they have a better chance to discover it. Second they will not be obstinate if one solution does not work. Finally they will tend to be more creative and will find opportunities that nobody would have thought about. There is one big problem. Rare are the people who will admit that they are not open minded. That character is most of the time recognized by people around you. Moreover, when you tell somebody that he is not open minded he becomes normally very susceptible. 10.13.6. Imitation Imitation is one of the secrets of successful people. To be successful you simply need to imitate successful people. However, most people like to do things their own way because they get all the merit for it. They think success is more rewarding if they rely only on themselves. You probably see the relation with transparency here. Transparent people would not mind imitating others to get successful. There is also a relation with jealousy and admiration. Jealousy is bad. Jealous people dont imitate success. They deny it. People with admiration are the one who progress by imitating a model. The reality is that if you rely only on yourself for success you may still get successful but it will take you much more time. And in the end you might be frustrated to realize that you are using the same recipe that you would have used if you would have been imitating somebody else. There are many examples of successful traders at Proprietary Trading Firms. There are also many books that have been written about successful trader. Find a role model in trading and imitate his success 10.13.7. Experience, Learning Curves and constant learning: Experience comes with time and you have to respect this fact of life. There is little doubt that you will get better at trading as time goes. You will learn from your mistakes and you will see patterns that you did not see before. Dont fall in the trap of thinking yourself as an experienced trader when you are not one. Also keep in mind that you will keep learning. If you are overconfident about your experience you will considerably slowdown you learning process. You will refuse some ideas because you think you already know about it. Always be like a child who is curious and wants to learn about everything there is to know 10.13.8. Crowd effect, Contrarian People normally like to be comforted by the opinion of others. In life if most people agree with you, you think you are heading the right way. The problem with that philosophy on the market is that most of the time when everybody is bullish the market is about to take a dive and when everybody is bearish the market is due for a rebound. Traders will have to learn to have their own opinions to be successful. They may even need to be contrarian. Most of the time the majority is wrong but the order flow cannot be wrong. This is because if 9 people are wrong and sell a stock the 1 guy who is buying is right. However this guy is big because his volume is 9 times bigger than the average. This concept explains why it is bullishbearish when many active traders are sellingbuying and the stock is not moving. The concept of activepassive will be explained later in the course. It may be hard to believe but two traders one long and one short at the same time can both make money. The solution is in the time frame of your trade and in selection of the right gateway. 10.13.9. Personal Life and Self Evaluation Life is life and trading is trading. Dont mix them together. If you are really tired or are dealing personal problems and cannot forget about your problems, your trading will be deeply affected. Try to have your mind empty before you start your trading day. Meditation is a very good way to do that. Self evaluating your condition is always very helpful. Before you start a new trading day you should rate how you feel about your life and how fit you are mentally to trade. In the event that you cannot forget about your concerns in your personal life, that you are sick or tired, it may be a good idea to reduce your trading size and event stop trading if it does not go well. Trading can also affect your life. Dont let a bad streak of trading days interfere with your social life or else your friends and family will have to suffer from your up and down like the up and downs of the market. Chapter 11 Trading Strategies Concepts 11.1 As many strategies as traders There is not just one way to make money in the market. You will find one strategy you like. However, the best style is a mix of many trading styles. It also needs to be a strategy that works in both an up and down market. Observe other traders and you will notice that even if good traders are always have the same profitable positions, they have different way to get filled on their order and they manage them differently. 11.2 Active Trading and Passive Trading Passive Traders add liquidity and Active Traders take it away from the market. There are times to be active and time to be passives. If a stock is trending and moving fast you might not be able to get it as a passive trader. If a stock is trading in a tight range with a lot of levels on both sides it probably does not make sense to try to trade this stock actively. You should instead place limit orders on the right gateway and try to make the spread. Choosing between Active Trading and Passive Trading is easier when you know the stock and when you have experience. However there is one rule of thumb. As a proprietary trader at Proprietary Trading Firms at least 70 of your trades should add liquidity. The vast majority of the volume at Proprietary Trading Firms is Passive. The best Passive traders are trading 8 stocks and more at the same time and have buy and sell orders on each one of them. This improves their chance of getting filled. Once they are getting shares they are doing what we call working the order. Passive trading requires more patience while active trading requires more reflexes. 11.3 Bid-Ask Size: You should always look at the Bid-Ask size before considering sending an order. You should also ask yourself all the size is real or if there is hidden size (more on that latter). You should normally be trying to get long if the biggest side is the bid and short if the biggest side is the offer. However if you are the last in line and do not use proper order routing you might be the last one to get fill and by then the size is not big anymore. 11.4 Hotkeys Traders are using keyboard shortcuts to trade more effectively. At Proprietary Trading Firms we use mostly F1 to F12 keys with combinations of SHIFT and CTRL. It is very important to configure them in an efficient manner. Also Traders should always use the numeric keyboard for numbers because it is a lot faster than using the numbers on the regular keys. The fastest trader with the best setup of keys will have a definite edge. 11.5 Inventory Management Trading a stock is all a lot about managing your positions. Even if a stock is a good buy you dont have infinite buying power and you need to buy an amount that both you and the market can handle. A rule of thumb is that you should never have more longshort shares than the level 1 bidoffer can take. This way, if there is an abrupt shift in the market you can get out flat at the market. Another concept is to try to take advantage of both sides of the market. That is to say your inventory needs to be fluctuating from long to short. To reduce your risk you should have both long and short stocks in your overall day trading inventory. With experience you will be able to handle a bigger inventory and you will therefore make more money. 11.6 Partial Fills amp Odd Lots If your order is filled partially and slowly this is normally a sign that you are on the right side of the market since small orders are normally coming from small uninformed traders. However if this happens in a cycle you should be concerned and evaluate if you are getting filled buy on bunched order (more on that later). The same thing is true if your orders are filled with odd lots since they are mainly from small pockets of traders that are most of the time on the wrong side of the market. 11.7 Making Trades You are getting information about the market every time you make a trade. The more trades you make, the more you know about the stock. It should not be hard to make more than 200 trades per day after a couple of weeks. After a month or two you should already reach 300 trades per day. The best traders at Proprietary Trading Firms are making over 600 trades per day 11.8 Tape reading and block trades: Watch the tape and try to look for block trades (more than 5k share). Bigger lots normally represent bigger players who are normally better traders. Are big trades happening on the offer or on the bid Are they happening with market makers, ECNs, specialists or dark pools Try to notice what happens on the stock you trade after those block trades. You will notice patterns and will be able to profit from it in the future. 11.9 Round Numbers Stocks tend to have difficulty to go through round numbers. A good strategy to use is to avoid going long at 7 8 and 9 digits and short at 1 2 and 3. The worst digit to be long at is 99 while 01 is where a good trader does not want to be short. This is especially true when there is a large amount of orders at the round number. 11.10 The level 1 spread Look for level 1 spread greater than 1 cent on active stocks. They normally offer the opportunity of getting a fill in the middle. If the stock is liquid and that there is a midpoint pegging order that is buying or selling you could make an easy profit. 11.11 Multiple Orders, Multiple Fills Traders can post their orders on more than one ECN in a duplicate format. This is useful when all ECNs are getting filled as you get a piece off all the action. However you need to be very prudent as if there is a Swipe of the level you are on, you will be ending up with more shares than you originally wanted. We call that multiple fills, Double Fills for two orders, Triple fill for 3 orders, etc. The trading software of Proprietary Trading Firms allow you to set OCO (one cancel the other) orders. This allows traders to have many orders canceling when another one is getting filled. Smart traders are able to judge how many orders to put to get a good fill. Normally you would not want to put 3 orders to buy when you would not want to be long in case of a swipe. 11.12 Short Squeeze Normally short positions are taken for a short period of time as the tendency is for stocks to go up in the long term. Therefore traders with a short position are potential buyers of the stock. When there are too many people short in a stock the pressure to the upside when they cover will make them loose on their short position and will also force other traders that are short to cover. This is called a short squeeze. The more people are short, the more potential buyers and the more this risk to happen. 11.13 The Axe Try to find the market maker that is the most active on the stock you trade. If that market maker is buying go long, if he is selling go short. The axe is nowadays harder to spot since market makers are now using ECNs. However you can still figure it out if you observe carefully the level 2. Never pick a fight with the axe: YOU WILL LOSE . These are extremely powerful and experienced traders, taking opposing sides to them will rarely work so instead, push with them. Many Axes trade such large blocks they must move share prices substantially to make a profit. By playing the midpoint of the axe, many traders can make good profits. 11.14 Advanced order types: You want to know what other traders are doing but you dont want them to know what you are doing. Advance orders are useful to hide your real intentions. When you will start trading on a bigger scale you will start using those orders more often. 11.14.1. Hidden Orders They are invisible orders. For example you can use hidden island orders. If somebody sends an order on the opposite side you will be executed and you will also get the rebates. However if somebody send a visible order on the same side and price than you he will get in front of you in execution priority. Hidden NSDQ are also useful when you are shaving on stocks lower than 1. You can keep the priority even if you are invisible if your price is 0.1 cent higher than the visible order. This trading style used to be very popular but there are now trading robots that are automatically shaving and it is really hard to get ahead. Also dont forget that stocks under 1 dollar have a different rebate schedule. If you want to start using hidden order talk to the manager about your strategy to make sure that it is reliable. 11.14.2. Reserve Orders They are orders that are showing fewer shares that they really are. For example ARCA could be showing 100 shares on the LEVEL 2 while if you send a sell order for 500 shares at the market on ARCA it will be fully executed and ARCA will still be showing 100 shares. Reserve orders are also called Iceberg orders by many exchanges for an obvious reason. You should use reserve orders if you want to get fill on a large number of shares without showing your real interest. If you are long on a stock that has a reserve order on the offer you should try to get out by offering. In fact since traders using reserve orders are sophisticated you should be trading on the same side than them. 11.14.3. Adding Liquidity only They are orders that will not be executed if they have to remove liquidity. They are useful to avoid paying the charges by mistake on BATS. Do not use post order by default cause you wont be able to get out if you have to be fast. 11.14.4. Test Orders They are orders sent to know how the market is taking them. For example you can send a small locking order on MLNM to see if there is a BuyerSeller on the dark pool. You can also send them on NSDQ or ARCA to see if other ECNs to see if there are other traders that are following you (Pegging Orders). Test orders are also very useful on the NYSE to see what side the specialist is filling faster. Normally orders a getting filled faster if they are on the wrong side of the market. 11.14.5. Following orders or Pegging Orders They are robot orders that are automatically following the best bidoffer on a stock to be first in line. Those orders are easy to get advantage of if you are experimented. On average try to be long if orders are following on the bid and short if orders are following on the offer. 11.14.6. Switching Orders They are orders switching from the bid to the offer and vice versa. If you see 1000 P printing on the Time amp Sales and you see an extra 1000 shares on ARCA immediately after you should notice that there are some scalpers on the stock. When there are too many scalpers, Market Makers will try to shake them by swiping the side they seem to prefer on 2 or 3 levels. 11.14.7. Bunched Orders They are trades that happen consecutively as a pattern on the ticker tape. For example 500 shares on ARCA at the offer every 30 seconds. This normally means somebody is trying to buy a big number of shares without the block trade being seen on the tape (50k share in 50 minutes). This is normally bullish and a big opportunity if there are prints on the bid at the same time. If you are able to get long at the bid you know this is only a question of time before you can get out on ARCA at the offer. 11.15 Relative Strength Relative strength is one of the most important principles a trader can use to trade successfully. By comparing stocks to others in its sectors, or its sector to the market as a whole, a trader will have a frame of reference from which to anticipate movements in the stocks price. By knowing the relationship between the stock and the market, a trader can predetermine what his reaction will be to each of the three potential market movements (up, down and no change). There are several indicators a trader can use to determine a stocks strength relative to its sector. A trader interested in trading XLNX for example, a semi-conductor company, he could watch INTC, a sector leader in the semi-conductor group. Typically, the larger companies of each sector will move before the tier two stocks within the same group. Traders, then, can use INTC as a leading indicator for XLNX. Sector indices also act as leading indicators for stocks within the sector. Using the same example, traders trading XLNX could watch the Philadelphia Semi-conductor Index (SOX. X) as a leading indicator. In this case it may be possible to have the index leading the sector leader, which could in turn be leading the stock in question. When comparing a stock or a sector to the market as a whole a trader will typically rely on the SampP Futures as a market indicator. There is a great deal of liquidity within the SampP Futures and this attracts traders and volume which allows the SampP Futures to, usually, reflects the mood of the market before other indicators including sector indexes. No matter what a trader is comparing, a stock to a sector leader, a sector leader to the market, it is the net change as a percentage that he will be interested in. This percentage change will allow the trader to establish the relative part of the relative strength equation. Once the trader has determined whether the market is strong, based on percentage change, he must determine how a specific sector is performing relative to the markets strength. After identifying a strong sector on a strong market day the trader must identify the strongest stocks within this sector. A trader who has taken the time to determine at stocks relative strength before playing it will be better off than the trader who simply jumped into the play without this information. It is recommended that traders not play stocks within the first ten to twenty minutes of the trading day. This is to avoid getting involved in a trade before the market has decided which way the stock is going to go. It is probable that stocks that gap up at the open will pull back. This occurs because market makers will attempt to pull back stocks that they were forced to assume a short position in while covering the demands of the public in order to cover them. If a trader jumps in prematurely he could find himself caught up in this movement. Relative strength as a trading mind set will see an astute trader identifying a stocks movement relative to the entire market. Ideally a trader will play a strong stock long on a strong day and weak stock short on a weak market day. If XYZA is ripping each time that the leading indicators begin moving upwards then the stock is obviously a candidate for the long play. If the same stock tanks each time that the leading indicator takes a bearish posture than it becomes an ideal short candidate on weak market days. Relative strength can be played a number of ways. Often traders can watch stocks that are down only a small percentage while the market is down a substantial amount. The patient trader will wait for a reversal in the markets direction and long the stock in question as soon as the leading indicators begin to rally. This is technically strategy, known as a reversal, and is covered in more detail elsewhere. Typically these stocks sit flat all day as the market declines and moves higher in short, rapid movements at each rally. Again, relative strength is a mindset that every successful trader employs whether he realizes it or not. Always know the strength of a stock relative to the market before trading it. Chapter 12 Your First Battle 12.1 Simulation The simulation trading part lasts 3-5 days from 9:00 4:30 p. m. E. T. During this segment you will get hands on experience with CTG Trader Pro, the execution software. You will be able to customize the Level II windows, time of sales, Trading Monitor and Position Summary windows. You will also customize your charts with the futures and appropriate stocks. Once your first day passes, you will be allowed to tailor your screen setup to your exact requirements and a multitude of other settings to your own personal cocktail. The data is in real time and the executions actually go to a simulator. The goal of training on simulation mode is not to make thousands of dollars, but rather to learn all the keys and to execute as many orders as possible with every execution system. The traders that can execute faster than others will definitely have an edge. Being able to get in front of orders quickly will ensure you a faster and better fills. During this segment, you will identify 2 8211 3 stocks that you will follow and trade on a daily basis. Money made or lost is not an issue . The main goal is to get you comfortable with the system. Be attentive and ask questions . Others experience will help you greatly. Keep keystroke mistakes to a minimum . With real money these mistakes can be extremely costly. 12.2 Live Trading Once you have mastered the keys and have identified 1 or 2 stocks to trade, you will then begin live trading at the 100 shares level. When you are profitable and confident, your Max Shares will be increased to 300. You may be at that level after 1 week (depending on your progression) and then move to 500 1000 shares level. We expect you to meet strict criteria before you increase your share level. Your buying power (BP) will also be increased accordingly. You will also print your daily blotters (trades) on a daily basis, and before the beginning of the next trading day we will meet and analyze the trades. You will highlight your best and worst trades and fill a small summary card for your trading day and explain why and what happened. Chapter 13 Applied Trading Strategies 13.1 Scalping: The Rebate Game Market Maker Game Trading this style requires a patient, focused and versatile trader. The goal of this style is to make profitable trades and to receive rebates from the different ECNs such as NASDAQ, ARCA, BATS, EDGX and EDA 13.1.1. Action Look and observe 5 to 10 slow moving stocks stocks with prices ranging from 1 to 10. The intra-day ranges of these stocks will vary from .10 to .30 depending on the stock, news and market condition. Mergers can be good candidates also for this type of trading Traders will look for thick stocks e. g. stocks with lots of depth at every price level. You will place bids and offers at the 1 st or 2 nd price level. Traders will choose from the list of stocks given to them that meet certain criteria for ideal bid amp offer stocks: Depth at every price level, lots of M. M. amp ECNs. Small intra-day range (.10 to .30) At least 1 million shares traded daily. .01 between price levels. 13.1.2. Strategy The objective is to BIDOFFER on ECNs according to the execution happening in the stock. Use the ECN on which you have the best change to get executed. For the side use the one that has the biggest size but you still have to get a chance to get an execution. Make sure the other side is not too big and that there are some executions on it. Make sure that the stock is in a range and not tanking or ripping. As soon as you get filled, OFFERBID half or the entire amount IN ORDER NOT TO SHOW SELLING PRESSURE. 13.1.3. Averaging Down Once or Twice Maximum Example. You bought 1000 shares at 2.62 and stock drops to 2.60, bid another 1000 shares at 2.60 to get an average price of 2.61. Offer immediately 2000 shares at 2.61. You will not make a profit on the trade but you will get the rebates and if the stock moves up and you are the last in line, you might be able to cancel your offer and make a profit by reoffering at 2.62. 13.1.4. When to get out on the downside Use your experience and judgment to decide if you should wait 2, 3 cents down or flat trade the stock. Your biggest winners should be at least as big as your biggest loser. You should not take a lot of 3 cents loss when you are only taking 1 cent profits. As you become more experienced your winning trades should be twice as much as your losing trades. 13.1.5. Warning: This group of stocks doesnt move much during the day. Some stocks will stay at the same price level for a long time without any execution before moving 1 or 2 cents up or down quickly. When there is major news on the stock, especially on mergers they can easily rip or tank by 20 cents or more. 13.2 Momentum Trading Trading this style requires a focused, versatile and disciplined trader. The objective of this trading style is to make profitable trades and to take advantage of the credits. Mastering buy and sell hot keys is imperative to be successful as a momentum trader. 13.2.1. Action: You will trade only one stock all day long. The stock price should be above 5 dollars but less than 20. The stock should also have a daily volume of 3 million shares. You will trade mainly for profits. Because of the nature, volume and movements of these stocks, you will have to be an active trader, which means taking the bid or offer (SMFOK) more often than bidding and offering. As a momentum trader you should find stocks that move in tandem with the market Traders will choose a stock from the list of stocks given to them. They are in the NASDAQ 100 and move in the direction of the market most of the time. You will put up a Stock Watch window with the SP Futures NASDAQ Futures, the COMPX, the sector index and some stocks. Before trading you need to determine the relative strength of your stock versus the sector, the NASDAQ 100 and the futures. Is the stock you are trading stronger or weaker than the overall market and sector A successful momentum trader takes time to observe the movements, patterns and volatility of the stock they are trading. As guidance, you will look at the NASDAQ futures, a chart of the stock and listen to the squawk box. The intra-day ranges of these stocks can be 0.25 to 1.00 depending on market conditions. Try to get long when the overall trend of the marketsector is up and that the stock is slow to react. Use the strategies explained earlier about relative strength. 13.2.2. When to get out on downside Use your judgment and experience to decide whether you should wait .03 or flat trade the stock. In some cases 3 cents might not be enough to survive the whipsaws. That is the reason why this style is more risky. Look at offer side piling up, futures and time of sales to gage whether or not you should stay in the trade or exit. When the stock is going your way, try to let run your profit. 13.3 Opening Strategies 13.3.1. What is the Opening We know that the stock market opens at 9:30. But, how is the opening price determined Why is it sometimes so different than the previous closing price How can we buy or sell at the opening price Those are questions we will answer. First, the opening process is different depending on what exchange a stock is traded. Generally the opening price you will see in yahoo finance or in the newspaper is defined by the first trade at or after 9:30. This can create some distortions on the NYSE since the real opening price is considered to be the NYSE opening cross operated by the specialist which is sometimes a bit delayed, especially on the days when there is considerable news. On those days the opening price you see in yahoo finance might well be the first print on an ECN or ATS which you cannot participate in with a NYSE opening order. There are opening orders for 3 destinations: NYSE, NASDAQ and ARCA. In all cases there is only one matching price for all orders that are matched: the price where the maximum number of shares can be matched. Therefore, the opening is a great opportunity for price improvement on small orders. For example, even if you bid an OPG order at 13.00 you can get executed at a much better price which could be at 12.65 if there is a very big selling imbalance at the open. The Website of ARCA, NASDAQ and NYSE are a good resource to learn the different characteristics of each respective opening process 13.3.2. Notion of fair value at the open Fair value is the expected value of a stock assuming there is no considerable news or change in supply and demand. Normally, if the stock market is opening at the same price where it closed the previous day a given stock, without specific news or news on its sectors, should also open around the same price where it closed. Now where should a stock price open when there is a premarket move of the whole market This depends mostly of the volatility of the stock. Stocks that have the same volatility than the market should open up or down by about the same in percentage. If a stock is twice as volatile as the market the percentage change from open to previous close should be twice the change on the market. Beta is often used as a good evaluator of the volatility of a stock. But how do we know what will be the percentage change of the index at the open Well the futures are giving us a big hint on that. One of the best ways to do that is also to look at the change on the SPY and DIA directly since the futures are not carrying dividend and there might be a change caused only by many ex-dividend stocks. 13.3.3. Envelope Strategy To take advantage of a few inefficiencies at the open when the opening price is far away from fair value astute traders are sending a basket of opening order bidding below and offering above fair value. They will normally do this using a fix percentage difference from the fair value. There are some strict rules to this strategy. Traders will not have stocks that have news in their baskets. They will normally quickly get out of the stock they got executed after the open. If not they will hedge their positions to avoid the impact of market movements. Envelope can be made on NYSE stocks, NASDAQ stocks and Arca stocks. All NYSE stocks will use NYSE opening orders and NASDAQ stocks will use NASDAQ or ARCA opening orders. One problem with the envelope strategy is that you have to manually calculate and adjust the price every day. This can be done in excel and then copied in a basket in CTG Trader PRO 13.3.4. Back Testing of envelope strategy It is possible to determine if an envelope strategy for a stock is successful by looking at the history of opening price compared to fair value. It is easier to do that on NASDAQ stocks than on NYSE stocks for the reasons we discussed before. The best way to get data to back test is to export it from yahoo finance and put it in excel. 13.3.5. Positive Trading Scenario Lets assume the SPY closed at 90.00. The next day before the open the SPY is trading at around 91.25. ABC stock closed at 20.00. We also assume that the stock has the same volatility than the market or a beta of 1. The stock also has no news and no news on its sector. The fair value of the stock should be around 20.28. With a 1 envelope, a trader should put a bid at 20.08 and an offer at 20.48. If the opening price is lower than 20.08 or higher than 20.48 the trader will participate at this price. Lets assume the trader put those bids and offer in place. At the open the stock prints 19.97. One minute following the open the stock is at fair value and the trader makes a profit of 31 cents per share. 13.3.6. Negative Trading Scenario In the same example the trader could have received a fill a 19.97. However, he realized a news announcement was released at the open and the stock plummet immediately to 19.50 after the open. 13.3.7. Risk of this strategy The main risk of this strategy resides in the overexposure in the event where there is a big market move in the first minutes of trading and the traders does not have time to offset his positions. This is more likely to happen on a day with a big gap on the overall market. Another risk is the risk of making a mistake in the calculation of the price. Since, traders are sending many orders the risk of making a small mistake that would propagate to the whole basket is very important. Another risk is linked to the illiquidity of the most performing stocks for this strategy. 13.4 Dark Pools Strategies 13.4.1. What are dark pools, how they work Dark pools are Alternative Trading Systems do not publish their order book in the Level 2 window. Dark pools are generally used by institutions to try reducing market impact when placing large orders. Dark liquidity pools offer institutional investors many of the efficiencies associated with trading on the exchanges public limit order books but without showing their hands to others. Dark liquidity pools avoid this risk because neither the price nor the identity of the trading company is displayed. Most dark pools also offer advanced algorithm trading to improve chances of executions of big orders. Since there is no book the execution range is based on the NBBO to avoid prints outside of the market 13.4.2. Dark pools features From pegging orders to VWAP adjusted orders Dark pools are offering very sophisticated ways for institutions to send their orders. Lets review the main features: 13.4.3. Pegging Orders Pegging orders are orders that are following the NBBO when its moving. For example an order to buy could be linked to the NBBO bid price. Orders can be pegged to the bid or the offer but they can also add an increment to it. For example, there could be pegged orders at bid 1 cent or ask -1 cent. Orders can also be pegged to the midpoint of the NBBO or to the last price. Generally, pegged orders have a pegging range or a pegging limit, they stop pegging once the price reaches a certain level. 13.4.4. Execution size features Institutions can set their orders to different setting for the size of their executions. There can be a minimum or a maximum per tick, a percentage of the displayed size or a minimum first execution. For example, there is an order for 50 thousand shares but if it is crossed with a small order it wont execute. 13.4.5. Linking and Scanners Many dark pools offer the possibility of linking orders to other dark pools. After scanning their own pool, if they dont find liquidity for an order, they will scan the book of other dark pools by sending one order on one dark pool after another. 13.4.6. Anti predatory trading algorithms Predatory trading is a style of trading that tries to take advantage of big institutions orders on illiquid stocks by forcing them to get in or out at a bad price. A predatory trader will send a test order to the dark pool to see if there is a big institutional order standing in the dark pool. Dark pools designed features to prevent the predatory traders to discover hidden liquidity too easily. Some of those features includes: the possibility of orders to flash in the book at random cycle time the possibility of splitting the orders in parts over a specific period of time and the possibility to not execute orders against an IOC. 13.4.7. Positive Trading Scenario Stock ABC is trading at 23.19 and looking at the time and sales window you see a lot of D prints hitting the bid. You get out of your 100 shares position at 19, and then you resend a bid on the dark pool at 19. Once again you get a fill instantly. At this point you have to see how many shares are on the bid and if the stock is shortable. If the stock is shortable and there is an amount that is not too high on the bid (its a question of judgment and experience here) you can hit the whole level and lower the offer to 19. Then you need to test if the dark pool is still crossing the market and selling at 18. Lets assume there were 1000 shares at 19. Now you are short at 19 and send a bid for 100 shares at 18. If you get filled you also take the 18 level. Assuming there is 500 shares at 18 you are now short 1300 shares. Once again you test the lower level and you get a fill. You hit 17 for 800 shares and test positively 16 for 100. You take 16 for 600 shares and test 15 positively. You are now short 2500 shares at an average price of 17.68. you decide that this is enough and bid the whole lot at 15 and get filled. You made a profit of about 67 without the fees. 13.4.8. Negative Trading Scenario Stock EFG is trading at 34.22 and you see a lot of D prints hitting the bid in the time and sales window. You send an order on the dark pool and get filled immediately. You get out of your 100 shares at 22 and retest the dark pool for 100 shares on the bid and get a fill. You hit the bid for 1200 shares, retest the bid at 21 and once again you get a fill. You take 900 shares at 21 and test 20 for 100. But now you order is not filled. You are now short 1900 shares and there are no more sellers on the dark pool. You look at the levels on the offer and its awful. There are only 800 shares total displayed shares until 30. You get out at an average of 31 for a loss of 200 dollars. 13.4.9. How institutions defend themselves Institutions know that predatory traders are taking advantage of them. But the price is still lower than it would be if they would have to display their big orders to the public market. They try to use advanced order types like minimal first execution size to avoid being fooled by basic predatory trading. Once in a while they will even post a bid when in fact they want to sell to trap the predatory traders. Once they know the trader as a considerable opposite position they will cancel their dark pool order and post on the other side. 13.4.10. Good rules this strategy Avoid illiquid Stocks and high priced stocks Avoid trying to go through a reserve order Avoid accumulating too many shares until the order on the dark pool as proven its size Avoid trying to push a stock in the same direction it just made with a big move in the last minute you are probably late to the party Avoid buying or selling too many shares at round numbers to push the stock Avoid taking too many shares if you cant push the stock, its better to get out at a small loss when the institution is still there Always evaluate the size of the opposite level before getting in a considerable position 13.4.11. Risk of this strategy The main risk of this strategy comes from the fact that you only rely on the belief that there is a big order in the dark pool. You are therefore exposed to considerable liquidity risk if you find out the liquidity in the dark pool is much smaller then what you expected. The biggest profits, but also the biggest lost, are made on very illiquid stock with this strategy. Another risk of this strategy is the inability for you to evaluate the reward to risk ratio before hand in most cases. This comes from the fact that most illiquid stocks have reserve or hidden orders in their books. Theory course 8211 Direct Access Electronic Trading Dealer Markets: NASDAQ Auction Markets: NYSE Market Makers Industry Terms ECNs (Electronic Communication Networks) 8211 Examples of ECN amp Trading Fees 7. Short Selling 8. Keystrokes and routing of orders 9. Market Knowledge: Relative Strength 10. Market Indicators: Futures and Indices 11. Squawk Box 12. Strategies: Bid amp Offer Vs. Momentum Trading 8211 Averaging updown 8211 Skills to be acquired 8211 Getting Started Goal Setting amp Plan of Attack (setting goals) During these 2 days, you will get familiar with the trading platform and you will customize your setups. You will also program the keystrokes and do as many executions as possible so that you will be prepared to execute properly in real mode. Once the initial training period of 5 days has been completed, its now time to trade with real money and start establishing your goals amp objectives. Its important to keep in mind that Youre here to trade and not watch the screen. If youre not in the market, youre not making money Evolution of a Prop Trader You will now be trading real money (Capital Traders Groups Capital), please respect the funds as if it was your own. We encourage you to experiment during this time various stocks while using all ECNs. This is the only way that you will only better understand the advantages amp disadvantages of all ECNs. While experimenting, 100 shares lots are recommended. 8211 Also, focus on 1 Identifying stock levels. 2 Shorting stocks 4 Reading stock levels from charts 5 Time of Sales Rules for LEVEL I 8211 You will be allowed to trade 100 share lots of stocks that are priced below 10.00. 8211 You are allowed to average updown 1 time of an additional 100 shares. 8211 You will not accumulate more than 200 shares at any given time 8211 We dont want to see losses of more than 0.0 3- 0.05share. 8211 Maximum loss of 50 perday. We will not be concerned with your profitability during Level I. (a) Making a minimum of 80 8211 150 tradesdays per day (1 buy and 1 sell is 2 trades). It is not guaranteed that if you make more trades, you will make more money. However, the main purpose here is to get you into the habit of trading. Obviously, the quality of the trade is much more important. About 200 trades per day is the norm. (b) During your 1 ST week. we will not be concerned about your profitability, just your ability to get comfortable with the software and your new position as a trader. (c) Experiment now while trading 100 and 200 share lots. You will learn a lot from your mistakes and better with 100 shares than 1000 shares (d) NO losses of more that .03sharedisciplinedisciplineetc Please complete following table for week I yahoofinance 8211 Information, news cbsmarketwatch 8211 Great for news tradearca 8211 view arca book mytrack 8211 See where your order is in the queue For the first 3 days, we would like to see you get familiar with the trading software, use of all ECNs, increase your speed of execution, understand concept of add liquidity vs removing liquidity, credit vs paying for shares. 8211 Important ideas, strategies amp types of trades (aside from buying low and selling high) to consider during your training and beyond 1 FIFO gt Being first in and first out on NSDQ, ARCA, BATS and EDGX is very important 2 Discipline yourself to avoid the big hit. You will only find out (the hard way) that one bad trade can wipe out 9 good ones. Dont look for Home Runs 3 Coming to office early, looking at MSNBC ticker tape and financial website to see stocks in play and get a good feeling for market sentiment for the day. 4 Check to see if theres news on the stocks that you play. If theres positive news on your stock, does that mean the stock will go higher. 5 Reversing a trade 6 Averaging updown 7 Writing down in a note book why your trades went good or bad, create your own rules of trading 8 Identifying BUYSELL opportunities through futures charts and squawk box. 9 Make sure that the stocks you trade have at least an average daily trading of 1 million shares 10 If you get frustrated or angry, walk away for a few minutes 11 Risk Management: Set your own rules and follow them. 12 Follow the trend gtgt DO NOT FIGHT THE TREND ltlt Start building levels of discipline and confidence Have a reason for getting inout of the stock 1 Futures moving 2 Good profit or stop loss limit of .03- 0.05 3 Stock breaking levels supportresistance Notes The higher the stock price, the more volatile the stock will be. The stock will also have a greater price range (high and low of day) during the day. Stocks under 5.00 are also good for credit trading with a small level of momentum built in. Squawk box starts to become a greater asset here After 3 -5 days of trading some traders will move on to Level II Rules for LEVEL II 8211 You will be allowed to trade up to 300500 shares priced below 10.00 8211 You are allowed to average updown 1 time of an additional 500 shares. 8211 You will not accumulate more than 1000 shares at any time 8211 We dont want to see losses of more than .03 -0.05share. Notes The stocks that usually trade in this price range are good for credit trading with a good levesl of momentum built in. Watch for levels of the stocks that you trade in this range, charts will help as well as the squawk box. Check news on your stocks or stocks in the related fields. Ex 8211 If Im, playing JDSU, I will also check for news on other companies in fiber optics. Companies tend to sympathize with other when it comes to news. GOALS The Goals in LEVEL II is A) To be profitable for 3 consecutive days with at least 50.00day. B) Make 80 trades day for 3 consecutive days. D) Your stop loss will be 100 daily 8211 If this is accomplished, you advance to LEVEL III. 8211 If you lose more than 100, you will be shut down for the day but you can still continue trading on practice mode. GOALS The Goals during week 2 (a) Focusing on being profitable . In order to increase to 500 share lots, you must be profitable (net profit) for 3 consecutive days or 3 our 4 days. (b) Making 100 tradesday with (c) Volume of approximately 20,000 sharesday. 8211 Experimenting with ECNs 8211 Flatting stocks and making full spreads 8211 Learning stock levels (support amp resistance) 8211 Read proprietary trading notes amp ideas at home 8211 Get out of losing positions by either reversing the trade, removing liquidity or smart sell (before it breaks the level) 8211 Do not fight the trend, know at all times if NASDAQ, E-MINIS amp SOX are positive or negative 8211 Watch your risk management 8211 With 300 share lots, your PL will start moving that much faster so please do not hold too many positions at one time (like at 100 share lots). Please complete following table for week II Rules for LEVEL III 8211 Congratulations on reaching LEVEL III, youre now able to trade up to 1500 shares of stocks that are priced below 10.00 and youre buying power will also increase. 8211 You are allowed to average updown 1 time of an additional 500 shares. 8211 You will not accumulate more than 2000 shares at any time 8211 No losses of more than 0.03-0.05trade. Notes Stocks that trade above 5.00 will have a little more momentum therefore, follow the futures more closely and listen more carefully to the squawk box which can have a greater effect on the price. With more volatile stocks, please do not jump in with a 1000 shares on your first trade, slowly build to that level. If you feel comfortable with stock still trading below 5.00 and want to continue with them, it is your choice. Were only suggesting alternative ways to trade. Your display should still have both momentum and flatting stocks to view. Geralmente . the first and last hour of the day is great for momentum plays and between these times, Concentrate on both profit and flatting stocks until you build your niche. (a) To make a minimum of 75-100 perday consecutive 3days If this is accomplished, you advance to LEVEL IV. If you lose more than 100 (and we know this will not happen), you will be shut down. It will then be managements decision to allow you to continue or not. 1 Getting to the next level In order to increase to 1000 share lots, you must be profitable (net profit) for 3 consecutive days or 3 our 4 days. Once you reach this new level, it does not mean that you should immediately start trading 1000 share lots, 8211 Make sure that your very comfortable with 500 shares 8211 Gradually increase to 1000 shares, 6008230700 Remember, 8211 Get out of losing positions by either reversing the trade, removing liquidity or smart sell (before it breaks the level) 8211 Do not fight the trend, know at all times if NASDAQ, E-MINIS amp SOX are positive or negative 8211 Be aware of your risk management, trade what you can handle 8211 Money management, cut losses 8211 Be aware of MMs or ECNs refreshing 8211 With 500 share lots, your PL will start moving that much faster so please do not hold too many positions at one time (like at 100 share lots). If you want to try momentum stocks (more volatile stocks, stocks usually above 20), remember that these stocks will have a much higher range during the day and that you should be looking for gains of at least .05 to .10 per trade. These stocks should follow the squawk and E-minis quite closely so pay attention to them. Removing liquidity is the way to get shares when trading momentum stocks. For momentum traders, your GP will be higher than your NP because of market orders (removing liquidity). Please advise Management in advance if you want to try this method of trading as losses of more than .03trade will be the norm . Initially, please start off with small lots (100-200 share lots) to get accustomed to momentum stocks. Please do not jump in with a 1000 shares on your first trade, slowly build to that level. Please complete following table for week III 8211 Now, you will be permitted to trade up to 5000 shares of any stock. 8211 Averaging updown is at your discretion as well as stock selection. 8211 You can continue with the Credit game or focus on momentum stocks. 8211 When trading momentum or more volatile stocks (stocks usually above 20), remember that these stocks will fluctuate more during the day and that youre looking for gains of at least .05 to .10 per trade. These stocks should follow the squawk and E-minis quite closely so pay attention to them. Also, removing liquidity is the way to get shares and then offering them out. For momentum traders, your GP will be higher than your NP due to removing liquidity. Please advise us in advance if you want to try this method of trading as losses of more than .03trade are the norm. Initially, please start off with small lots (200-300 share lots) to get accustomed to momentum stocks. (a) To make a minimum of 100 perday for 3 consecutive days. (b) Making 100 tradesday for 3 consecutive days. (c) Trading volume of 100,000 shares perday for 3 consecutive days. If this is accomplished, you advance to LEVEL V. If you lose more than 150, your shut down for the day but you can still continue trading on practice mode. If you have reached this level, youre well on your way to becoming a Prop trader. However, there is still work to do in order to reach a net profit of 3000. 8211 Youre now permitted to trade up to 5000 shares of any stock. 8211 Averaging updown is at your discretion as well as stock selection (a) To make a minimum of 150 perday. At this level, you will reach 3000 by months end (150 x 20 trading daysmonth) If you lose more than 200, you will be shut down for the day. It will be managements decision to allow you to continue trading or not. Month by Month Objectives 8211 You will be starting to trade in the middle of a given month and this gives you the opportunity to do lots of practicing, experimenting and making mistakes so that you can start fresh the following month. Get familiar with the software, ECNs and trading environment. 8211 We are looking for consistency and discipline from you. 1 st Full Month 8211 Youre still new but excuses should be limited. 8211 Things to keep in mind 1 Focus on the stocks trading levels, ranges amp Time of Sales 2 Getting a few cents per trade and flatting trades. 3 Asking questions to other traders about trading. 4 Taking notes, writing down questions or scenarios to ask other traders about. 5 Coming to office early (8 am) to get a head start or a good feeling for the day. 6 Discipline amp Confidence. 7 Experimenting with all the ECNs and various stocks. 8 More positive days than negative days 9 Avoid the big hit and dont look for home runs 2 nd Month - Its time to focus on setting make serious money 1 Trades should be 150 200 per day 2 Volume should be at least 100,000 shares per day 3 Net Profit should be a minimum of 2000 (thats only 100 per day) 3 RD andor 4 th Month Focus is on 5000 plus in these months 1 Trades should be at least 100day with a volume of 150,000day 2 Average net profit is 225day Appendix A Intraday Trading Periods Appendix B Office Rules Appendix C Suggested Reading List
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